IP Protection, the cornerstone of modern economies

Transcription

1 MINING AND RESOURCES ARTS, MARKETING, MEDIA UNIVERSITY AND APPLIED RESEARCH PHYSICS AND ENGINEERING CLEAN TECHNOLOGY, ENERGY IP Protection, the cornerstone of modern economies CONSUMER PRODUCTS BIOTECHNOLOGY MATERIALS SCIENCE AGRICULTURE, AGRICHEMICALS, FOOD NUTRITION NANO TECHNOLOGY QANTM Intellectual Property Limited 2018 Annual Report

2 PROFILE QANTM INTELLECTUAL PROPERTY LIMITED QANTM Intellectual Property Limited was incorporated on 17 May QANTM is the holding company of intellectual property companies Davies Collison Cave Pty Ltd, Davies Collison Cave Law Pty Ltd, Davies Collison Cave Asia Pte Ltd and Davies Collison Cave NZ Limited (collectively referred to as DCC), as well as FPA Patent Attorneys Pty Ltd, FPA Patent Attorneys Asia Pte Ltd and Advanz Fidelis IP Sdn Bhd, acquired on 2 July Refer to page 93 for an organisational structure of the QANTM Group. QANTM INTELLECTUAL PROPERTY Managing Director, CFO and other executive functions. Refer pages 16 and 17 for biographical details, including Managing Principals. Davies Collison Cave FPA Patent Attorneys Advanz Fidelis IP 39 Principals 11 Principals CEO and 3 Department Heads Patents Trade Marks Law Patents Patents Trade Marks Law Formed 1877 Melbourne Sydney Brisbane Singapore Auckland FPA Partnership est 1890 Melbourne Sydney Singapore Formed 2000 Kuala Lumpur 70 professionals 50 professionals 19 professionals QANTM has the expertise of a total of 120 fee-generating professional IP personnel, as well as a professional, administrative and support staff of 181 personnel, with a total of 301 employees as at 30 June Advanz (acquired 2 July 2018) has 19 fee-generating professionals. ANNUAL GENERAL MEETING QANTM s Annual General Meeting of Shareholders will be held on Thursday, 29 November 2018 at the State Library Victoria, Village Roadshow Theatrette, 179 La Trobe Street, Melbourne, Victoria. The meeting will commence at 2:30pm Australian Eastern Daylight Time. QANTM INTELLECTUAL PROPERTY LIMITED

3 QANTM AND INTELLECTUAL PROPERTY SERVICES Intellectual property (IP) Intellectual property (IP) rights are devices which protect the output of intellectual creativity in the commercial, industrial, scientific and artistic fields. IP is the cornerstone of modern economies, of innovation and creativity. Demand for IP services is underpinned by increasing R&D and the importance of the protection of both physical and intangible assets for companies and other organisations. Intangible assets Intangible assets represented by intellectual capital, R&D and the provisions of services account for approximately 80% of the value on US corporate balance sheets. IP-intensive businesses and sectors play a highly important role in national and regional economies for employment and the generation of economic growth. Many small and medium sized enterprises, as well as research institutes and academic institutions, rely upon the development and protection of IP assets, whether inventions, contracts, licences, logos or services for their commercial value. Patents Patents, registered designs and copyrights establish ownership rights to inventions and other works and provide a legal foundation for such rights. Trade marks enable the protection of the goodwill and reputation of products and/or services. Legal and litigation services provide for the maintenance, protection, enforcement and commercialisation of IP rights. QANTM KEY CHARACTERISTICS QANTM, as a leading publicly listed IP company, offers clients in a range of sectors a suite of services associated with the creation, protection, commercialisation, enforcement and management of IP rights. The services offered are highly specialised and provided through three main entities: Davies Collison Cave, FPA Patent Attorneys and, from 2 July 2018, Advanz Fidelis IP. Key business characteristics of QANTM and its business sector include the following: attractive industry dynamics (e.g., historical growth in patent filings typically at or above GDP levels); DCC and FPA have traded profitably over long periods and through various economic cycles; a business model that generates recurring revenue streams, often over periods of at least 20 years; regular invoicing of clients with typically low work-in-progress/working capital; generally low capital expenditure requirements; associated strong cash flow conversion, enabling the payment of dividends and/or re-investment opportunities for growth. QANTM s policy is to pay 70% 90% of NPATA with dividends 100% franked over financial years 2017 and 2018; attractive EBITDA margin structure, averaging 28.4% in 2017 and 2018; favourable industry dynamics and growth prospects in developing economies; and high barriers to entry via geographical scale, ICT systems, professional capabilities. ANNUAL REPORT

4 QANTM BUSINESS ATTRIBUTES Revenue generation through the provision of IP services typically entails recurring revenue over what are relatively long IP cycles, usually involving application, filing, registration, prosecution and examination, portfolio management and renewal phases. Client relationships, as such, can exist over extended periods, for at least 20 years. Typical Stages of the IP Lifecycle Patents 12 Months 30 Months from first filing date Typically 2-5 years Up to 20 years from PCT filing date Patents Originating Basic application Searches, drafting file basic application Intl. (PCT) application Drafting (pre-filing), file PCT application international preliminary search and examination National/ regional Phase application National and/or regional phase applications filed Prosecution and examination National and/or regional phases examination, opposition and grant in each jurisdiction Post-grant Ongoing renewal and enforcement work 30 Months from first filing date Typically 2-5 years Up to 20 years from PCT filing date Patents Incoming National/ regional phase filings National and/or regional phase applications filed Prosecution and examination Local examination, opposition and grant Post-grant Ongoing renewal and enforcement work Source: DCC and FPA management analysis This diagram illustrates the typical stages and duration of the patent application, prosecution and renewal process. Multiple points of revenue generation are evident. Advisory and legal and litigation services can result in higher value revenue streams at various stages of the patent life cycle. 2 QANTM INTELLECTUAL PROPERTY LIMITED

5 PROFESSIONAL CAPABILITIES The provision of QANTM s IP services is characterised by specialist industry or sector experience, often gained through direct professional career experience, as well as a depth of technical or scientific skill associated with graduate and often post graduate educational qualifications. Patent attorney and legal qualifications supplement the specialist technical skills of many of QANTM s professionals. QANTM s people are technically proficient, insightful, creative and empathetic to their clients requirements. IP professionals are required to keep abreast of industry and sectoral trends through involvement in relevant industry or professional associations; the development of networking skills; contribution to professional, scientific and technical fora and a commitment to ongoing professional development. An attribute, flowing from the professional depth of QANTM personnel, includes the cross-specialisation of key professionals, with some specialised, scientifically or technically educated/experienced personnel with legal qualifications and an ability to provide not only patent or trade mark advice, but also legal/litigation services. DCC and FPA Experience and Qualifications (fee-generating employees only) Professionals Principals Average IP-related Experience (Principals) Masters Degree PhDs DCC years FPA years Total years AWARDS AND INDUSTRY RECOGNITION Davies Collison Cave Managing IP, Asia-Pacific, Australia Trade Mark Prosecution IP Firm of the Year, 2018 Asialaw Profiles Outstanding Law Firm for Intellectual Property Managing Intellectual Property IP Stars Firm Survey Tier 1 Trade Mark Contentious and Patent Prosecution Managing Intellectual Property IP Stars Firm Survey Tier 2 Patent Contentious and Tier 1 Trade Mark Prosecution IAM Patent 1000, 2018 Highly Recommended for Patent Prosecution and Transactions, Silver Tier for Patent Litigation World Trade Mark Review 1000, 2018, Highly Recommended for Trade Mark Prosecution and Litigation FPA Patent Attorneys 2017 A. J. Park Prize, Best Performing Student in the Drafting of Patent Specifications Intellectual Asset Management IAM Patent 1000, The World s Leading Patent Professionals 2018 FPA awarded highest category, Highly Recommended for Patent Prosecution. Managing Intellectual Property, FPA Ranked Among Global IP Stars as Tier 1 Firm, 2018 IP Stars awarded to 5 FPA patent attorneys Intellectual Asset Management IAM Patent , The World s Leading Patent Professions 2017, FPA Highly Recommended for Patent Protection ANNUAL REPORT

6 INTELLECTUAL PROPERTY AREAS OF EXPERTISE QANTM provides IP services in the areas of patents, trade marks and legal and litigation services. The expertise and experience of QANTM enables specialist advice to be provided in a range of sectors, including the following: Agriculture, agrichemicals, food, nutrition Arts, marketing, media Biotechnology Building and construction Clean technology, energy herbicides, fertilisers, resistance genes, genotyping domain names, image protection, agency licences animal and human health products, food technologies, immunology forming systems, industrial tools, lifting devices solar technologies, carbon capture, battery power IP Protection, the cornerstone of modern economies Consumer products and design Electrical and electronic engineering Fashion, architecture and design Food, beverages, FMCG ICT and software mobile phones, consumer goods computer based hardware, power systems, transmission terminals fashion, building designs, logos fermentation, yeast genetics and molecular biology, soft drinks and beverages, meat processing internet technologies, artificial intelligence, semi-conductors 4 QANTM INTELLECTUAL PROPERTY LIMITED

7 DCC Law, apart from providing IP legal and litigation services, offers advice in the following areas: corporate, including ASX and Corporations Act advice and compliance; taxation, including income tax, capital gains tax, stamp duty and state and territory duties, as well as tax litigation; mergers and acquisitions and capital raisings; and business and estate succession planning for high net worth individuals. A part of DCC and FPA s revenue generation is in the form of strategic advice which includes: searching for patents in a particular field of technology and identifying opportunities for potential patent protection; providing litigation and other services in relation to all forms of IP including patents, design, trademarks and copyright; trade mark due diligence enquiries and advice in relation to trade mark infringements. The entities of QANTM maintain an integrated ICT system to ensure the secure retention of client data, including file and document management, as well as management of all other functions required for client servicing and management reporting. Industrial chemicals Materials science Medical devices and technology Mining and resources Nano technology polymers, cleaning systems, cosmetics polymers, surface science, medical devices surgical equipment, electronic implantable devices, diagnostic aids, imaging materials technology, mineral processing, water treatment microelectronics, nano-scale fabrication, characterisation technologies Pharmaceuticals and chemistry Physics and engineering Plant breeder s rights University and applied research DCC Law medicines, organic chemistry, genetics nanotechnology, photonics, electrooptical systems plant breeding, genotyping, transgenic plants medical research innovations, inventions IP legal and litigation services and advice ANNUAL REPORT

8 CONTENTS Operational and Market Highlights 7 From the Chairman 10 From the Managing Director 12 Business and Market Characteristics 14 Key Management Personnel 16 Board of Directors 17 Directors Report 18 Auditor s Independence Declaration 41 Consolidated Statement of Profit or Loss and Other Comprehensive Income 42 Consolidated Statement of Financial Position 43 Consolidated Statement of Changes in Equity 44 Consolidated Statement of Cash Flow 45 Notes to the Consolidated Financial Statements 46 Directors Declaration 84 Independent Auditor s Report 85 Additional Information for Listed Companies 89 Corporate Directory 92 6 QANTM INTELLECTUAL PROPERTY LIMITED

9 OPERATIONAL AND MARKET HIGHLIGHTS Operational Lateral recruitment of two experienced intellectual property teams; to DCC and FPA Appointment of a corporate legal team to DCC, effective 1 July 2018 DCC Law to offer a wider range of services including corporate and private client advisory, merger and acquisition and tax and property advisory services Acquisition of Malaysian IP firm, Advanz Fidelis IP Sdn Bhd, finalised 2 July 2018 Promotion of 17 professionals in July 2017; 33% involved promotions of female professionals Further 23 promotions after commencement of 2018 financial year, 65% female Incentive arrangements for new principals, through establishment of Employee Share Trust Business reconfiguration and efficiency initiatives implemented during the first half of the year designed to align business resourcing with market conditions Increased business development and marketing activities to generate additional revenues, enhance DCC/FPA s position in specific geographies Market Group patent applications declined marginally (down 0.6%) year-on-year Patent Cooperation Treaty (PCT) and rest of world applications higher and at record levels Australian patent applications decreased 6.2%, with a second half on first half increase of 12% Trade mark applications, advisory and renewal work continued to grow Australian trade mark filings for DCC up 3% Legal and litigation service provision revenues increased year-on-year ANNUAL REPORT

10 FINANCIAL HIGHLIGHTS 2018 Total Revenue of $101.7m a 1.5% decline (2017: $103.2m) Operating cash flow of $11.3m (2017: $21.3m) Services Charges revenue $76.5m a 4.9% decline (2017: $80.4m) - reflecting a reduction of foreign derived, Australian prosecution and advisory patent work Operating expenses $61.1m reduced by 1.0% (2017: $61.7m) EBITDA after foreign exchange $20.1m (2017: $24.5m) EBITDA margin % (service revenue) 26.3% (2017: 30.5%) Net profit after tax of $11.9m (2017: $14.8m) Net debt as at 30 June 2018 of $8.3m (2017: $7.4m) Gearing (net debt/net debt + equity) of 10.6% (2017: 9.4%) Full year dividends of 7.1 cents 100% franked (2017: 8.9 cents, 100% franked) Above reflects underlying results to facilitate comparisons period to period. A reconciliation of statutory to underlying results is included in Note 5 of the Directors Report. 8 QANTM INTELLECTUAL PROPERTY LIMITED

11 FINANCIAL HIGHLIGHTS 2018 Summary of 2018 Full Year Underlying 1 Financial Results $m FY 2018 FY 2017 % Change Service Charges Revenue (4.9) Associate Charges Revenue Total Revenue (1.5) Operating Expenses (1.0) EBITDA pre FX (18.2) EBITDA after FX (18.0) EBITDA margin % (service revenue) (13.8) Net Profit after Tax (19.6) Operating Cash Flow (47.0) Net Debt (12.2) Gearing % (net debt/net debt + equity) (12.8) EPS (cents per share) underlying (18.9) EPS (cents per share) statutory Dividend (cents per share) 100% franked (20.2) underlying results are shown with 2017 pro forma numbers. This is designed to facilitate comparisons period-to-period. In 2018 adjustments of $3.2 million were made associated with: one-off incentive payments to attract and retain new Principals via a newly established Employee Share Trust ($0.9 million), and restructuring and corporate acquisition costs $2.3 million. 2. Associate charges relate to revenue from recharging the cost of foreign agents that lodge applications in countries outside those in which QANTM acts; the revenue is offset by recoverable expenses which for 2018 were $23.4 million (2017: $19.9 million). ANNUAL REPORT

12 FROM THE CHAIRMAN Dear Shareholders The nature of the intellectual property services provided by QANTM forms the cornerstone of modern economies. Innovation, research, development and the creation and marketing of new products, brands or services, all require the underpinning of patent, trademark or other forms of specialist IP protection. QANTM is well equipped to continue the long heritage of Davies Collison Cave (DCC) and FPA Patent Attorneys (FPA) in providing specialist services across a wide range of customer segments and geographies. There were a number of aspects of the 2018 financial year, QANTM s second as a publicly listed company. Organisationally, your directors are pleased with the further steps in enhancing the depth of professional skills in the Company, in the promotion of professional staff, in professional training and leadership development and in steps to align employee interests with those of all shareholders. At the beginning of the 2018 financial year, there were seventeen internal promotions to the roles of principal, senior associate, associate and trade mark counsel. One third of these promotions were women. At the beginning of July 2018, this year s promotions involved 23 employees with 65 per cent of the promotions involving female employees. This was one representation of both career advancement and the greater diversity being achieved in our workforce, associated with measures to facilitate worklife balance for our people. For new principals who were not vendors at the time of the public listing, we have established an Employee Share Trust to provide incentive payments to retain and motivate these employees. The management of the Company, led by Leon Allen, has been active in investigating opportunities to broaden the revenue generation base of the business, beyond an internal refocussed effort on marketing and business development. The acquisition of Malaysian intellectual property firm, Advanz Fidelis IP, finalised in early July 2018, reflects the completion of one such activity. The acquisition of this established business, with a presence in Malaysia and other parts of Asia, including China, is consistent with QANTM s approach to expand its business in the region and to better service our clients in Australia, the United States and elsewhere. Your directors, in conjunction with management, undertake regular reviews of the strategic priorities of the Company. No fundamental changes to the strategic direction of the Company, as articulated at the time of the Company s listing, have been made. However, your directors regularly review areas of business growth, the internal capabilities 10 QANTM INTELLECTUAL PROPERTY LIMITED

13 FROM THE CHAIRMAN of the organisation, industry trends and the competitive environment. We believe it our role to take an active, participatory and supportive role in assisting management in the evolution and enhancement of the Company s business position. The major strategic areas of focus remain: to build QANTM s existing IP business, both in Australia and Asia, with initiatives related to lateral recruitments, a focussed marketing and business development programme, the creation of new services and expansion of the Group s South-East Asian business; business improvement, both by capturing and focussing on how technology can improve business efficiency, as well as enhance the manner in which services are provided to existing and new clients; people and culture including alignment of the workforce to key organisational objectives and measures, the promotion of diversity and career development; and the pursuit of opportunities in our existing areas of operation or in a manner which may enhance our geographical spread or service offering. Dividends for the 2018 financial year of 7.1 cents per share, fully franked, were declared. I would like to express my appreciation to my fellow directors for their commitment and efforts to the interests of the Company and its shareholders. To the management and other employees, both within DCC and FPA and at a corporate level, I commend you for your efforts. Thank you to our clients and shareholders for your loyalty during a difficult trading period. Richard England Chairman The above areas seek to address the objectives of offering consistently superior intellectual property services to our clients and of attracting, retaining and motivating high quality professionals. Our key focus, of course, is on financial performance improvement and shareholder value creation. As is detailed in this report and will be commented upon by the Managing Director, the financial results for 2018 have shown a decline from those of Your directors are very encouraged, however, by the stabilisation in business conditions in the second half of the financial year and the improvements delivered on most financial measures. In 2018 there was pleasing growth in the financial performance of QANTM s trade mark and legal businesses. The patent prosecution and advisory part of the business the largest experienced a year of lower revenues. This, in turn, adversely affected QANTM s overall financial results, with earnings before interest tax, depreciation and amortisation (EBITDA) declining by 18 per cent. Net profit after tax was lower by 19.6 per cent. While much of the decline was market-related, I can assure shareholders that concerted efforts are in train to improve revenues and earnings. Despite the softer market conditions, your company retains a strong balance sheet with a low level of debt and gearing. QANTM is well equipped to continue the long heritage of DCC and FPA in providing specialist services across a wide range of customer segments and geographies. ANNUAL REPORT

14 FROM THE MANAGING DIRECTOR Dear Shareholders I am pleased to advise that QANTM achieved a full year EBITDA within the range as advised in February 2018, following subdued broader market conditions evident in the first half of the financial year. I am also pleased to observe that there are indications of a recovery in the broader Australian patent market dynamics, a key part of your Company s business, which flowed through to the marked improvement in QANTM s second half financial performance. Despite the fact that QANTM s 2018 full year financial results were lower than the preceding year, shareholders can take encouragement that market conditions appear to be stabilising and offering the potential for an improvement in industry characteristics. In looking at the main features of QANTM s market position, the Group s overall number of patent applications in 2018 was down only marginally, less than one per cent, compared with the prior year. The major factor influencing the business was the weakness in Australian patent applications, most evident in the first half, which resulted in a 6.2 per cent annual decline in Australian patent applications. This contributed to the lower year-on-year Patent revenues, down by 8.7 per cent to $52.6 million, only able to be partially offset by growth in other parts of the business with a 4.9 per cent decline in Services Charges revenue to $76.5 million. Encouragingly, QANTM s second half patent applications recovered by twelve per cent compared to the first half, outpacing the overall market, which increased three per cent. In turn, the Company s patent filing market share position recovered to levels similar to the two prior years. Outside of Australia, QANTM s patent co-operation treaty, as well as rest of world (ex Asia, Australia and New Zealand) patent applications in 2018, increased solidly and are at record levels. The potential stabilisation in Australian patent applications, backed by a solid performance in other geographies, provide confidence that higher prosecution and advisory revenue-sourced work should become evident in forthcoming periods. The trade mark and the legal and litigation parts of the QANTM business both performed solidly in 2018, displaying an increase in business workload and revenue outcomes. QANTM s trade mark filings increased three per cent, with a strong relative performance compared to its main industry peers, and with revenues increasing by 2.7 per cent. DCC s legal and litigation revenues increased by 7.5 per cent, while this part of the business implemented initiatives to further expand its product and service offering. Features of the 2018 financial year, as well as more recent initiatives, include the following: increased expenditure on business development and marketing activities, designed to generate additional business and enhance future revenue outcomes; the lateral recruitment of two experienced intellectual property teams, one in DCC and one in FPA; in the case of DCC Law, the appointment of a corporate law team, effective 1 July 2018, to offer a wider range of services, including corporate and private client advisory services, merger and acquisition and tax and property advisory services. These services are complementary to DCC s current offerings and ones which some of our clients have requested we provide. Similar such broader service offerings will continue to be investigated; embarking on the establishment of an FPA Singapore office, supplementing the established regional presence of DCC; the extensive promotional and career advancement activities to which the Chairman has referred to in part; and continued activities to establish common and integrated systems in DCC and FPA, designed to improve the efficiency of information technology, data management and customer relationship systems. As the Chairman indicated, management time is devoted to evaluating growth opportunities that may enhance future revenue generation, including by initiatives that broaden the QANTM business model, geographical presence and forms of service delivery. Such opportunities will continue to be evaluated and advanced where there is a compelling business and investment proposition. 12 QANTM INTELLECTUAL PROPERTY LIMITED

15 FROM THE MANAGING DIRECTOR These activities, during 2018, led to the acquisition of the Malaysian intellectual property firm, Advanz Fidelis IP. This represents another important step in broadening QANTM s business and revenue generation base in South-East Asia. Integration and marketing plans are in train to facilitate business opportunities across DCC, FPA and Advanz, and enable the effective sharing of the resources of the expanded QANTM Group. Your Company has a strength of professional intellectual property expertise and experience. I believe it also demonstrates a differentiated capability and market position in its areas of client servicing. In turn, QANTM continues to demonstrate sound cash flow generation and a flexible balance sheet. QANTM and its key entities of DCC, FPA and now Advanz, are well positioned to evolve, grow and generate financial returns for the benefit of all of stakeholders: our employees; our clients domestically and internationally and our shareholders. I join the Chairman in thanking you for your continuing support. Leon Allen Managing Director QANTM has a strength of professional intellectual property expertise and experience. I believe it also demonstrates a differentiated capability and market position in its areas of client servicing. ANNUAL REPORT

16 BUSINESS AND MARKET CHARACTERISTICS QANTM Group Business Outcomes The following table provides a summary of the revenue outcomes and main factors influencing QANTM s three main business areas, as well as market position data. Business Areas Patents and Designs Lifecycle/Advisory Trade Marks Legal/Litigation Percentage of aggregate QANTM Service Charges revenue in % 19% 12% 57% Lifecycle 12% Advisory 19% Lifecycle 12% Lifecycle 2018 vs 2017 Service Charges Revenue Service and Foreign Associates Changes Revenue $52.6m vs $57.6m $73.0m vs $76.2m $14.3m vs $13.9m $19.1m vs $18.1m $9.6m vs $8.9m Main Factors Lower level of foreign sourced, Australian patent work, particularly prosecution and advisory Australian domestic patent applications down 6.2% y-o-y Trade mark business growth, filings up 3% Strong DCC Australia trade mark business Increase in client litigation/legal work; continuation evident into 1H 2019 Overall Group patent applications marginally lower, down 0.6% Market Position 2 DCC equal #2 firm DCC individual firm DCC legal services QANTM #3 group QANTM #2 group Source: DCC and FPA management analysis Notes: 1. Excludes Associate Changes. 2. Market position analysis is based on the total number of patent or trade mark applications filed in Australia in FY18 and assumes the Group and two additional competitor groups of businesses both operated in their current form. 14 QANTM INTELLECTUAL PROPERTY LIMITED

17 BUSINESS AND MARKET CHARACTERISTICS Patent Applications Australia The following charts convey total patent applications filed in Australia over the last five years; the QANTM Group s level of patent applications and the Group s market share. Total Patent Applications Filed in Australia FY 2014 FY 2018 QANTM Australia Patent Applications FY 2014 FY 2018 QANTM Patent Filings Total Market Share FY 2014 FY % 12% 9% 6% 3% 0 FY14 FY15 FY16 FY17 FY18 0 FY14 FY15 FY16 FY17 FY18 0% FY14 FY15 FY16 FY17 FY18 1H18 2H18 Total QANTM Overall Australian market patent filings down 0.3% FY 2018 vs FY 2017 QANTM Australian patent applications down 6.2% from FY 2017 QANTM patent applications 12.0% higher 2H vs 1H H 2018 application in line with 2H 2017 Decline in annual market share, with soft 1H 2018 Recovery in 2H market share to similar levels to prior years ( ) ANNUAL REPORT

18 KEY MANAGEMENT PERSONNEL Managing Principals of Davies Collison Cave (DCC) and FPA Patent Attorneys (FPA) James Cherry BSc(Biochem), LLB (Hons), Patent Attorney Chris Jordan LLB, LLM, BA Lawyer Adam Sears LLB (Hons) Lawyer David Webber LLB, BEng (Hons) Patent Attorney Lawyer Michael Wolnizer LLB (Hons), LLM Lawyer Trade Marks Attorney Managing Principal FPA Patent Attorneys Managing Principal DCC Law Managing Principal DCC Trade Marks Managing Principal DCC Patents Managing Principal DCC Group Joined FPA 1990 Joined DCC 1989 Joined DCC 1988 Joined DCC 1985 Joined DCC 1994 QANTM Executives QANTM s Key Management Personnel (KMP) are responsible for planning, directing and controlling the activities of the Group. Leon Allen BSC (Hons), Patent Attorney Managing Director & CEO DCC Shelston IP Spruson & Ferguson Joined QANTM 2016 Joined DCC 1995 Martin Cleaver B.Bus, CA Chief Financial Officer Chandler McLeod ANZ KPMG Joined QANTM 2017 The KMP team include six Executive Officers (including five Managing Principals from DCC and FPA), one Executive Director and four Non- Executive Directors. 16 QANTM INTELLECTUAL PROPERTY LIMITED

19 BOARD OF DIRECTORS Richard England Independent Non-Executive Chairman FCA, MAICD Richard was appointed independent Non-Executive Chairman on 17 May He was formerly a partner at Ernst & Young from 1988 to 1994 and a consultant until Richard is a Fellow of the Chartered Accountants Australia and New Zealand and a Member of the Australian Institute of Company Directors. Richard is a Non-Executive Director of Atlas Arteria Ltd (formerly Macquarie Atlas Roads Limited), Bingo Industries Limited, Japara Healthcare Limited, Nanosonics Limited and Nutrano Produce Group Pty Ltd. Leon Allen Managing Director and Chief Executive Officer BSC (Hons), Patent Attorney Leon was appointed Managing Director and CEO and QANTM on 17 May Prior to this, Leon was the Managing Partner of Davies Collison Cave (DCC) and Chairman of the firm s national management board from 2011 to Leon joined DCC in 1995 and has worked as a patent attorney since Leon is a past president of The Institute of Patent and Trade Marks Attorneys of Australia having served on its Council from 1992 to Leon has served two terms on the Advisory Council on Intellectual Property to the Federal Government, the second as Chair. Leon is a Fellow of the International Federation of Patent Attorneys Academy of Education, teaching patent drafting in Europe and a Senior Fellow of the University of Melbourne. Abigail Cheadle Non-Executive Director B.Bus, ACA, MAICD Abigail is a chartered accountant and executive director with over 25 years experience in Australia, Asia, Europe and the Middle East. Abigail has had an international executive career with global services firms, building and managing businesses through Asia; undertaking restructuring and recapitalising: the former Soviet Union and Iraqi foreign debt, listed companies and financial institutions; identifying fraud and managing regulatory investigations and litigation. She worked for Kroll, KordaMentha, Deloitte and Ernst & Young and was formerly a certified fraud examiner and a member of the Singapore Institute of Directors. Abigail is Chair of the Audit, Risk and Compliance Committee. Cameron Judson Non-Executive Director BA, MBA, MAICD Cameron was most recently the CEO of McGrath Limited, a position held from 2016 to Previously he was CEO and Managing Director of Chandler Macleod Group Limited from 2012 to Cameron is also a member of the Australian Institute of Company Directors. Cameron is Chair of the People, Remuneration and Compliance Committee. Sonia Petering Non-Executive Director LLB, B.Com, FAICD Sonia is an experienced corporate lawyer who commenced her own legal practice in Sonia is a Non-Executive Director of Cuscal Limited, TAL Dai-Ichi Australia Pty Ltd and Virtus Health Ltd (ASX:VRT). Sonia previously served as a Non-Executive Director on the boards of the Transport Accident Commission and Rural Finance Corporation of Victoria, as chair of the board from 2009 to Sonia is a Fellow of the Australian Institute of Company Directors. Committees Audit, Risk and Compliance Committee Chair, Abigail Cheadle People, Remuneration and Culture Committee Chair, Cameron Judson ANNUAL REPORT

20 DIRECTORS REPORT The Directors of QANTM Intellectual Property Limited ( the Company or QANTM ) present the full-year financial report of the Company and its controlled entities ( the Group or QANTM Group ) for the 12 months ended 30 June To comply with the provisions of the Corporations Act 2001, the Directors report follows. QANTM was incorporated on 17 May QANTM is the holding company of intellectual property services firm Davies Collison Cave Pty Ltd, Davies Collison Cave Law Pty Ltd, and Davies Collison Cave Asia Pte Ltd, (collectively called Davies Collison Cave or DCC ) and FPA Patent Attorneys Pty Ltd ( FPA ). The Company was admitted to the official list of the Australian Securities Exchange ( ASX ) on 31 August The Company has the ASX code of QIP. QANTM owns two of Australia s leading intellectual property ( IP ) firms, providing services in relation to the creation, protection, commercialisation, enforcement and management of IP to a broad range of Australian and international clients. DCC is one of the largest patent and trade mark attorney firms in Australia. DCC s three major service areas are patents, trade marks and legal services. FPA is a specialist patent attorney practice and focuses solely on patents and designs. The Group, through DCC and FPA, has offices in Sydney, Melbourne, Brisbane and various regional centres, with a Singapore presence conducted by DCC. The Group generates revenue from foreign associates, which includes IP and patent attorney firms in multiple jurisdictions globally. As at 30 June 2018, the QANTM Group had a total of 301 employees. 1. General information 1.1. Directors The names of the Directors in office at any time during, or since the end of, the year are: Names Mr Richard England Mr Leon Allen Ms Abigail Cheadle Mr Cameron Judson Ms Sonia Petering Position Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. 18 QANTM INTELLECTUAL PROPERTY LIMITED

21 DIRECTORS REPORT 1.2. Information on directors The skills, experience and expertise of each person who is a Director of the Company at the end of the financial year are provided below, together with details of the Company Secretary as at year end. Mr Richard England Qualifications Experience Interest in shares and options Special responsibilities Other current listed directorships Former directorships of listed entities (last 3 years) Non-Executive Chairman FCA, MAICD Richard was appointed independent Non-Executive Chairman on 17 May He was formerly a partner at Ernst & Young from 1988 to 1994 and a consultant until Richard is a Fellow of Chartered Accountants Australia and New Zealand and a Member of the Australian Institute of Company Directors. 135,134 shares Chairman Richard is a Non-Executive Director of Atlas Arteria (formally Macquarie Atlas Roads Limited), Bingo Industries Limited, Japara Healthcare Limited and Nanosconics Limited. Chairman of Ruralco Holdings Limited until he resigned on 5 September Mr Leon Allen Qualifications Managing Director and Chief Executive Officer BSc (Hons), Patent Attorney Experience Leon joined DCC in 1995 and has worked as a patent attorney since He had been managing partner and chairman of DCC's national management board since Leon is a past president of the Institute of Patent and Trade Marks Attorneys of Australia, having served on its Council from 1992 to Leon served two terms on the Advisory Council on Intellectual Property to the Federal Government, the second as Chair. He is a Fellow of the International Federation of Patent Attorneys Academy of Education, teaching patent drafting in Europe, and is also a Senior Fellow of the University of Melbourne. He was appointed Managing Director and CEO on 17 May Interest in shares and options Special responsibilities Other current listed directorships Former directorships of listed entities (last 3 years) 2,037,227 shares None None None ANNUAL REPORT

22 DIRECTORS REPORT 1. General information (continued) 1.2 Information on directors (continued) Ms Abigail Cheadle Qualifications Experience Non-Executive Director B. Bus, ACA, MAICD Abigail is a chartered accountant and executive director with over 25 years experience in Australia, Asia, Middle East and Europe. Abigail has had an international executive career with global services firms, building and managing businesses through Asia; undertaking restructuring and recapitalising: the former Soviet Union and Iraqi foreign debt, listed companies and financial institutions; identifying fraud and managing regulatory investigations and litigation. She worked for Kroll, KordaMentha, Deloitte and Ernst & Young and was formerly a certified fraud examiner and a member of the Singapore Institute of Directors. Interest in shares and options Special responsibilities Other current listed directorships Former directorships of listed entities (last 3 years) Abigail is a member of the Australian Institute of Company Directors. 90,090 shares Chairman of Audit, Risk and Compliance Committee None Abilgail was a Non-Executive Director of SurfStitch Group Limited. Mr Cameron Judson Qualifications Experience Interest in shares and options Special responsibilities Other current listed directorships Former directorships of listed entities (last 3 years) Non-Executive Director BA, MBA, MAICD Cameron was most recently the CEO of McGrath Limited, a position held from 2016 to Previously, he was CEO and Managing Director of Chandler Macleod Group Limited from 2012 to July Cameron is a member of the Australian Institute of Company Directors. 45,044 shares Chairman of People, Remuneration and Culture Committee None None 20 QANTM INTELLECTUAL PROPERTY LIMITED

23 DIRECTORS REPORT 1. General information (continued) 1.2 Information on directors (continued) Ms Sonia Petering Qualifications Experience Interest in shares and options Special responsibilities Other current listed directorships Former directorships of listed entities (last 3 years) Non-Executive Director LLB, B.Com, FAICD Sonia is an experienced corporate lawyer who commenced her own legal practice in Sonia is a Non-Executive Director of Cuscal Limited, TAL Dai- Ichi Australia Pty Ltd and Virtus Health Ltd (ASX:VRT). Sonia previously served as a non-executive director on the boards of the Transport Accident Commission and Rural Finance Corporate of Victoria, as chair of the board from 2009 to Sonia has chaired various board committees, including audit and risk, marketing and road safety, remuneration and capability. Sonia is a Fellow of the Australian Institute of Company Directors. 45,044 shares None Non-executive Director of Virtus Health Limited. None Company Secretary The following people held the position of Company Secretary at the end of the financial year: Mr Martin Cleaver Mr Hasaka Martin Martin Cleaver was appointed as Company Secretary on 30 August 2017 and also serves as Chief Financial Officer. Martin is a chartered accountant with over twenty years experience in senior finance roles, including most recently with Chandler Macleod Group Ltd as Executive General Manager, Finance and also as Deputy Chief Financial Officer. Prior to that Martin held senior finance positions at ANZ Banking Group Ltd and KPMG. Hasaka Martin was appointed as Joint Company Secretary on 19 December Hasaka is a chartered secretary with over ten years experience, he holds a Graduate Diploma in Applied Corporate Governance and is a Fellow of both the Governance Institute of Australia and the Institute of Chartered Secretaries and Administrators. ANNUAL REPORT

24 DIRECTORS REPORT 2. Meetings of Directors The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 30 June 2018, and the number attended are: Directors' Meetings Audit, Risk and Compliance Committee People, Remuneration and Culture Committee Attended Held Attended Held Attended Held Mr Richard England N/A N/A N/A N/A Mr Leon Allen N/A N/A N/A N/A Ms Abigail Cheadle Mr Cameron Judson Ms Sonia Petering Principal Activities QANTM comprises the businesses of DCC and FPA, two of Australia s leading professional IP services firms. Both firms principal operations are in Australia where each services both local and international clients in respect of their Australian IP rights. Asia is a strategic focus of both firms and DCC opened an office in Singapore in July During the second half of the year, QANTM announced the acquisition of the Malaysian intellectual property company, Advanz Fidelis IP Sdn Bhd. The acquisition was completed subsequent to the end of the financial year, on 2 July 2018, with an upfront payment of AUD$3.05 million. There were no significant changes in the nature of the Group's principal activities during the financial year 4. Operational and financial review 1 The following provides commentary on the Group s 2018 results. The underlying results of the QANTM group are provided, which in 2018 are adjusted for various items, not considered of a recurring nature, including employee incentive and share based payments of $0.9 million and restructuring and business acquisition costs of $2.3 million. The comparison is provided to 2017 Pro forma results which made certain adjustments associated with the Initial Public Offering ( IPO ) costs and other one-off expenses associated with the restructure of the business. Refer page 26 for a reconciliation of statutory Net Profit After Tax ( NPAT ) to underlying NPAT. The Group s total revenue was $101.7 million, compared with $103.2 million Pro forma revenue for the corresponding period in The Group s reported consolidated underlying EBITDA after FX was $20.1 million compared with $24.5 million pro forma EBITDA for the 2017 financial year. The Group s NPAT was $11.9 million, compared with the 2017 Pro forma result of $14.8 million. Net debt as at 30 June 2018 was $8.3 million, compared with $7.4 million as at 30 June Gearing (net debt/net debt + book equity) at 30 June 2018 was 10.6%. In line with the Company s dividend payment policy, Directors determined a total 2018 dividend of 7.1 cents per share, fully franked, made up of an interim dividend of 2.8 cents per share and a final dividend of 4.3 cents per share. 1 The Directors believe the use of underlying financial and additional information to the IFRS measures included in the report is relevant and useful in measuring the financial performance of the Group. 22 QANTM INTELLECTUAL PROPERTY LIMITED

25 DIRECTORS REPORT 4. Operational and financial review (continued) The Group s Total underlying Operating Expenses were $61.1 million, compared with a pro forma $61.7 million in 2017 (refer below for details of Recoverable Expenses associated with Associate Charges). The Company provided a Trading Update on 13 February 2018 related to the first half trading conditions and the implications for the full year forecast. The Company had advised, as part of its 2017 full year results issued on 30 August 2017, that it expected a return in Australian patent and trade mark filing applications to long term historical, GDP growth rates. Based on the then unaudited financial results for the six months to 31 December 2017, despite higher trade mark and intellectual property legal revenues, the unaudited figures showed a 4.7% decline in total revenues compared with the corresponding 2017 half year period. Accordingly, the Company advised that it expected revenue and EBITDA to be higher in the second half of 2018, with a full year 2018 forecast EBITDA after FX and before restructuring costs in a range of $19.0 million to $22.0 million. The range assumed no material adverse movement in the AUD/USD. The 2018 full year EBITDA after FX was $20.1 million. Second half 2018 Total Revenue was $52.5 million, compared with $49.2 million in the first half of 2018, and EBITDA after FX in the second half of 2018 was $10.7 million compared with $9.4 million in the first half of Associated with the Trading Update, the Company advised that a restructuring program had been undertaken towards the end of the first half of the year. The restructuring is expected to generate cost savings from the 2019 financial year although with the likelihood that these savings will be offset in whole or part by increased investment in market and professional development. $1.9 million in restructuring costs were incurred in 2018, mainly related to redundancies. Principal operational and business activities during the year included: increased business development and marketing activities, designed to generate additional business and enhance DCC/FPA s position in specific geographies and industry sectors to enhance future revenue generation; in line with the Group s incremental business approach, the lateral recruitment of two experienced intellectual property teams; one to DCC and one to FPA, occurred during the year; the appointment of a corporate law legal team to DCC, effective 1 July 2018, to offer a wider range of services, including corporate and private client advisory services, merger and acquisition and tax and property advisory services. These services are complementary to DCC Law s current offerings and are ones which some of its clients have requested and which DCC is now in a position to provide; promotion of 17 professionals across the Group in July 2017; 33% involved promotions of female professional staff and a further 23 promotions after 1 July 2018, 65% of which were female; the implementation of incentive arrangements for new principals, facilitated through the establishment of an Employee Share Trust; continued activities to establish common and integrated systems in DCC and FPA, designed to improve the efficiency of information technology, data management and customer relationships systems. Programs included the implementation of an integrated payroll system; electronic file and data management system across the business and further progress on the implementation of a common financial reporting system; business reconfiguration and efficiency initiatives implemented during the first half of the year with a number of positions either being made redundant or subject to early retirement as well as a reduction in back office costs. These initiatives sought to align business resourcing to market conditions. Restructuring and corporate acquisition costs of $2.3 million were incurred; and the Board and management continued to identify and pursue growth opportunities, including acquisition opportunities, that have both a strategic rationale and financial merit. These activities led to one opportunity being progressed: the acquisition of Malaysian intellectual property firm, Advanz Fidelis (finalised on 2 July 2018). ANNUAL REPORT

26 DIRECTORS REPORT 4. Operational and financial review (continued) 4.1. Business conditions Business conditions in the 2018 financial year were primarily marked by the following features: Group patent applications or filings in 2018 declined marginally overall (down 0.6%), with Patent Cooperation Treaty ( PCT ) and rest of world applications both higher and at record levels for the Group. This continued an encouraging trend, evident during the second half of the year, and is a positive indicator for the potential flow through of future period prosecution and advisory work; Group Australia patent applications decreased year-on-year by 6.2%, although applications in the second half 2018 increased by 12.0% compared to the first half; Group Singapore based applications, although a small part of the total, decreased 18.4% year-on-year; trade mark applications, advisory and renewal work continued to grow, with Australian trade mark filings for DCC up 3.0%; and legal and litigation service provision, with a higher contribution from this area to Group revenues Financial Results Key Elements The main features of the 2018 financial results are provided below. Revenue Total Revenue was $101.7 million for the year, a 1.5% decline (2017: $103.2 million). Total Revenue comprised: Service Charges revenue of $76.5 million, which represented a 4.9% decline (2017: $80.4 million); Associate Charges revenue of $25.2 million, which represented a 10.5% increase (2017: $22.8 million). Recoverable expenses, mainly related to Associate Charges, was $23.4 million in 2018, compared with $19.9 million in The main features of the service charges revenue outcome for the Group included: lower patent revenue of $52.6 million (2017: $57.6 million), mainly associated with a lower level of foreign derived, Australian prosecution and advisory patent business; the trade mark business continued to strengthen compared to the prior corresponding period, with increased revenue to $14.3 million (2017: $13.9 million); and legal and litigation revenues increased to $9.6 million (2017: $8.9 million). Associate charges revenue of $25.2 million (2017: $22.8 million) comprised: total patent revenue of $20.3 million (2017: $18.6 million); and total trade mark revenue of $4.9 million (2017: $4.2 million). Other income, excluding foreign exchange, was stable at $2.1 million (2017: $2.0 million) Total Expenses Operating expenses declined, with a total of $61.1 million (2017: $61.7 million). Compensation and occupancy costs declined while other operating expenses, which included an increased commitment to marketing and business development activities, were stable year-on-year. Total Expenses (inclusive of Operating Expenses and Recoverable Expenses from Associate Charges) of $84.5 million, reflecting a 3.6% increase from the 2017 level of $81.6 million. 24 QANTM INTELLECTUAL PROPERTY LIMITED

27 DIRECTORS REPORT 4. Operational and financial review (continued) 4.4. EBITDA and EBITDA Margin The Group recorded EBITDA before FX was $19.3 million (2017: $23.6 million), reflecting lower revenue generation. The foreign exchange gain in 2018 was $0.8 million, compared to $0.9 million in EBITDA after FX was $20.1 million, compared with $24.5 million in Group EBITDA after FX as a percentage of total revenue was 19.8% (2017: 23.7%). A more appropriate measure of EBITDA margin is to consider EBITDA as a percentage of Service Charges (given Associate Charges are predominantly reversed in Recoverable Expenses). This measure generated an EBITDA margin of 26.3% (2017: 30.5%). The Group recorded stronger second half 2018 financial outcomes, with second half EBITDA before FX increasing by 5.3% compared with the first half of 2018; EBITDA after FX increasing 13.8%. The second half EBITDA as a percentage of Service Charges was 27.8% Depreciation and Amortisation Depreciation and amortisation in 2018 was $2.1 million compared with $2.0 million in The slightly higher depreciation level in 2017 reflects expenditure on the shared ICT platform Net Profit after Tax Group NPAT was $11.9 million compared with $14.8 million in A tax expense of $5.3 million represents an effective taxation rate of 31% Net Interest and Net Debt Net interest charges in 2018 were $0.8 million. The Company held total bank facilities of $59.5 million and had $15.7 million drawn as at 30 June 2017 with $8.3 million cash on hand. As at 30 June 2018 the Company had net debt of $8.3 million. Gearing (net debt/net debt + equity) at 30 June 2018 was 10.6%. Gearing, excluding Reorganisation Reserve was 2.5% Operating Cash Flow Cash flow provided by operating activities for the year was $11.3 million with a net decrease in cash of $5.4 million after investing and financing movements Net Assets The net assets of the Group have decreased by $1.2 million, from $70.9 million at 30 June 2017 to $69.7 million at 30 June Trade receivables increased by $2.0 million, offset by an increase in net debt of $1.0 million and an increase in trade and other payables by $1.4 million.. ANNUAL REPORT

28 DIRECTORS REPORT 5. Net profit after tax The reconciliation table below reconciles statutory net profit after tax ( Statutory NPAT ) to underlying NPAT: Year ended 30-Jun Jun-17 $'000 $'000 Statutory NPAT 9,513 7,180 add: DCC LLP pre acquisition NPAT - (68) add: FPA pre acquisition NPAT - (2,241) NPAT QANTM Group 9,513 4,871 add: interest add: depreciation and amortisation 2,164 1,918 add: tax 4,469 2,867 EBITDA QANTM Group 16,981 10,634 add: IPO expenses - 6,601 add: share based payments add: employee incentive payments add: retention bonuses - 4,553 add: reorganisation expenses - 1,325 add: initial recognition Principal LSL - 1,684 add: partnership expenditure less: notional remuneration adjustment - (1,445) add: restructuring and business acquisition costs 2,304 - Underlying EBITDA QANTM Group 20,145 24,467 less: depreciation and amortisation (2,164) (2,036) less: interest (835) (978) less: tax (5,284) (6,683) Underlying NPAT - QANTM Group 11,862 14,770 1 Represent one-off benefit payments to provide selected employees access to the Company s shares, facilitated through the Company s cash contributions to the Employee Share Trust. 26 QANTM INTELLECTUAL PROPERTY LIMITED

29 DIRECTORS REPORT 6. Business model, strategy, priorities and business sustainability risks 6.1. Business model QANTM, as a leading publicly listed IP company, offers clients in a range of sectors a suite of services associated with the creation, protection, commercialisation, enforcement and management of IP rights. The services offered are highly specialised and provided through three main entities: Davies Collison Cave (DCC), FPA Patent Attorneys (FPA) and, subsequent to the end of the 2018 financial year, the recently acquired Malaysian business, Advanz Fidelis. Key characteristics of QANTM have included the following: attractive industry dynamics (e.g. historical CAGR of patent filings typically at or above GDP levels); DCC and FPA have traded profitably over long periods and through various economic cycles; a business model that generates recurring revenue streams, often over periods of 20 years plus; regular invoicing of clients with typically low work-in-progress/working capital; generally low capital expenditure; associated strong cash flow conversion, enabling the payment of dividends and/or re-investment in opportunities for growth; an attractive EBITDA margin structure; favourable industry dynamics and growth prospects in developing economies; and high barriers to entry associated with the importance of reputable, technically qualified patent attorneys, long term client relationships and information systems for patents and trade mark recording Strategy QANTM s strategic focus is based on revenue growth and client retention through offering consistently superior IP services and market development activities; evaluating and, where appropriate based on strategic and financial grounds, pursuing appropriate acquisition opportunities; attracting and retaining high quality professionals; and from the foregoing activities the delivery of appropriate shareholder returns. The current main elements of QANTM s strategic focus include: focus on revenue growth from the existing business model, via new patent and trade mark applications, prosecution, advisory services and patent renewals; provision of patent litigation and other services to both domestic and international clients, with business generated from both QANTM s entities as well as outside clients; development and expansion of an intellectual property services business in Asia. This was initially executed through a strategy of establishing a Singapore office presence which entailed managing clients Asian portfolios and filings and building a local originating presence drawing upon the firm s technical expertise, as well as selective professional appointments. More recently, this has entailed the evaluation of appropriate acquisition opportunities to increase the scale and interlinkage of QANTM s Asian presence. This was reflected in the acquisition of Advanz Fidelis, announced towards the end of the financial year with the transaction completed, subject to certain work out arrangements, on 2 July 2018; delivering of synergies and common operating efficiency savings, including implementation of an ICT platform, back office rationalisation and investment in innovative technical systems; and maintaining and enhancing internal organisational capabilities through the attraction, retention and provision of career advancement and professional training opportunities of professional personnel and provision of share based incentive arrangements aligned to shareholder interests. ANNUAL REPORT

30 DIRECTORS REPORT 6. Business model, strategy, priorities and business sustainability risks (continued) 6.3. Priorities The outlook and priorities for QANTM s business operations over the next twelve months include the following factors: the expected stabilisation of a recent trend of lower than historical rates of Australian patent applications; subject to the situation for Australian patent prosecution outcomes, the potential for higher levels of prosecution and advisory revenue associated with the favourable recent trends in Group PCT and rest of world patent application growth; an increased focus on marketing and business development activities, for the purpose of enhancing revenue generation from existing clients, through the interchange of services across parts of the Group and by the generation of new business. This has and will include a greater level of principal commitment, in terms of time, to current and prospective client engagement through direct means, conference and associational participation and other professional activities; the provision of new service offerings which broaden the Group s professional services to a range of sophisticated clients; an increased contribution from the Group s Asian presence, through the interchange of IP services across Australia, Singapore and the recently acquired Malaysian business; delivery of cost savings associated with the restructuring initiatives undertaken in the first half of 2018, as well as further efficiencies from the establishment of common ICT systems, for example payroll and financial reporting, although with the likelihood that these savings will be offset in whole or part by increased investment in marketing and professional development; the continued focus on the attraction, retention and career enhancement of multi-disciplinary professionals, including by share based arrangements which encourages retention of key personnel and an alignment of their interests with those of shareholders; and a continued evaluation and, where appropriate, pursuit of acquisition opportunities that fulfil both the Group s strategic and financial requirements Business Sustainability Risks The operating environment for QANTM entails business risks and opportunities that could have an effect on the financial prospects of the Group. These risks include, but are not restricted to the following: IP services competitive marketplace The market for the provision of IP related services is subject to competition from other listed entities, private firms and other specialist providers, as well as the potential threat associated with some part of a client s IP requirements being in-sourced. Any change in the Group s competitive position or the competitive landscape may have an adverse impact upon the financial performance of the Group. These changes may include: loss of key clients; loss of key associate referral arrangements in other jurisdictions; adoption of new forms of technology for the provision of IP services; competitive actions in terms of pricing strategies to attract business and/or regulatory changes. Retention of professionals The nature of the services provided by the Group are fundamentally based on the intellectual knowledge, industry experience and client knowledge of key professional staff. The loss of key professionals poses a risk to the quality of the Group s service offering and potential revenue generation. Management continually considers approaches to attract, retain and facilitate the career and professional development of key personnel. This includes facilitating professional development through education, courses and involvement in professional associations; promotion of individuals on an annual basis including to Principal and where, practicable, role or geographical rotation. A process of determining succession planning arrangements for key personnel, including the Chief Executive Officer is a forthcoming priority. 28 QANTM INTELLECTUAL PROPERTY LIMITED

31 DIRECTORS REPORT 6. Business model, strategy, priorities and business sustainability risks (continued) Technology The Group relies on ICT networks and systems to process, transmit and store electronic and financial information, to manage a variety of business processes and activities such as client documents, communication with clients and regulators, financial management and reporting, database management and to comply with regulatory, legal and tax requirements. If the Group s ICT systems suffer severe damage, disruption or shutdown and the issues are not effectively resolved in a timely manner, then the Group s revenue, financial condition and results of operations may be materially and adversely affected and the Group may breach regulatory requirements. Any failure of the Group s ICT systems may result in the inability to file or prosecute the IP rights of their clients within statutory deadlines. Such a failure could result in the Group s clients forfeiting IP rights to which they would have otherwise been entitled. These events could lead to financial loss for the Group in the event that aggrieved clients initiate legal action against the Group. Depending on the circumstances the Group s insurance may be insufficient to cover some or all of the loss incurred. Management maintains a prioritised ranking of such risks and addresses their mitigation and with external advisers where necessary. For further details refer to the Company s Corporate Governance Statement at 7. Significant changes in state of affairs There were no other significant changes in the state of affairs of the Group during the financial year. ANNUAL REPORT

32 DIRECTORS REPORT 8. Remuneration Report (Audited) The directors present the remuneration report for the year ending 30 June The information provided in this report has been audited as required by section 300A of the Corporations Act This remuneration report, which forms part of the directors report, sets out information about the remuneration of the Group s key management personnel (KMP) for the 2018 financial year. KMP refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. The report has been divided into the following sections: Identification of the KMPs; Role of the People, Remuneration and Culture Committee; Non-Executive Director s remuneration; Executive remuneration framework; Relationship between the remuneration policy and Group performance; Key terms of employment contracts; and Remuneration of KMP Key Management Personnel The directors and other KMP of the Group during, or since the end of the financial year, were: Non-Executive Director Mr Richard England Ms Abigail Cheadle Mr Cameron Judson Ms Sonia Petering Executive Director Mr Leon Allen Executive Officers Mr Warren Howe 1 Mr Martin Cleaver 2 Mr James Cherry Mr Michael Wolnizer Mr David Webber Mr Adam Sears Mr Christopher Jordan Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Position Managing Director and Chief Executive Officer (CEO) Position Chief Financial Officer (CFO) and Company Secretary Chief Financial Officer (CFO) and Company Secretary FPA Managing Principal DCC Principal and National Management Committee Chairperson DCC Patent Managing Principal DCC Trade Mark Managing Principal DCC Law Managing Principal 1 Ceased as a KMP on 30 August Commenced with the Group on 30 August The named persons held their current position for the whole of the financial year, unless otherwise indicated. 30 QANTM INTELLECTUAL PROPERTY LIMITED

33 DIRECTORS REPORT 8. Remuneration Report (Audited) (continued) 8.2. Role of the People, Remuneration and Culture Committee The Board has established a People, Remuneration and Culture Committee ( PRCC ) which operates in accordance with its charter as approved by the Board. The PRCC assists and advises the Board on remuneration policies and practices for the Board, the Managing Director and CEO, the CFO, and any other KMP. The objective of the Committee is to help the Board fulfil its statutory, fiduciary and regulatory responsibilities and achieve its objectives so that the Company: has a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties; has coherent remuneration policies and practices to attract and retain executives and directors who will create value for shareholders; observes those remuneration policies and practices; and fairly and responsibly rewards executives having regard to the performance of the Group, the performance of the executives and the general external pay environment. The PRCC is also responsible for: reviewing the remuneration of Non-Executive Directors for serving on the Board and any Committee (both individually and in total) and making recommendations to the Board having regard to market trends; annually considering and making recommendations to the Board on the executive s total remuneration having regard to executive remuneration and incentive policies; determining if shareholder approval is needed for any change to remuneration of directors or executives; reviewing and making recommendations to the Board on the recommendation of the Managing Director and CEO: - the total remuneration (including incentive awards, equity awards, and retirement and termination payments); - the terms of engagement; and - any changes to the total remuneration and terms of employment, of direct reports of the Managing Director and CEO; and recommending to the Board for approval any changes to the remuneration or terms of engagement of the executive directors before implementation. The PRCC or the Board has not engaged a remuneration consultant to provide remuneration advice or recommendations during the financial year Non-Executive Directors remuneration Under the Constitution, the total amount of fees paid to all directors for their services (excluding for these purposes, the salary of an Executive Director) must not exceed in aggregate $850,000 in any financial year. Any change to this aggregate annual sum needs to be approved by shareholders. There is no performance remuneration for Non-Executive Directors. Directors and the Chairman may also be reimbursed for expenses reasonably incurred in attending to the Company affairs. Non-Executive Directors may be paid such additional or special remuneration as the directors decide is appropriate where a director performs extra work or services which are not in the capacity as a director of the Company or a subsidiary. There are no retirement benefit schemes for directors, other than statutory superannuation contributions. Details of Non-Executive Director fees, inclusive of committee fees and superannuation, are summarised in the remuneration of KMP table of this report. Each of the Non-Executive Directors has a shareholding providing a direct alignment of interests with the performance of the entire business, and therefore, shareholder interests. ANNUAL REPORT

34 DIRECTORS REPORT 8. Remuneration Report (Audited) (continued) 8.4. Executive remuneration framework The Company s remuneration policy was transitioned during its first year as a listed entity. As a former partner and previous owner, Managing Director and CEO, Mr. Leon Allen has a substantial shareholding, thereby, providing a direct alignment of interests with the performance of the entire business. Most of the other senior executives and KMP were partners in the pre-ipo entities and, as a result, have substantial equity ownership in the Company. Likewise, this provides strong alignment between these executives and shareholders interests. For this reason, these KMP will not participate in the short or long term incentive plans for the initial three year period in alignment with their employment contracts. In addition, the partners in the pre-ipo entities have a two-year restriction period on trading their equity holdings from the date of listing and must remain employed by the Group for at least a three year period. As the Company recruits new executives, the Company will develop a market focused, competitive remuneration framework to support the attraction and retention of key executive talent. The following summarises the current framework: Total Fixed Remuneration (TFR) Executive KMP receive TFR which includes base pay, superannuation and other benefits such as annual leave and long service leave. Short Term Incentive Plan (STI) FY18 During FY2018, the Company recruited Mr Cleaver as CFO and Company Secretary. Mr Cleaver was offered a STI plan of up to 20% of TFR. Mr Cleaver was the only participant in the STI plan during FY18. The STI results for the financial year are based on him achieving Key Performance Indicators (KPIs) agreed with the Managing Director and CEO for the period of the financial year that he was employed. Long Term Incentive Plan (LTI) FY18 There are currently no participants in the LTI plan as all executive KMP, except for the CFO and Company Secretary, were partners in the pre-ipo entities. During FY19 the Board may invite executives who were not pre-ipo partners, to participate in the LTI plan. The Board will determine the terms of future grants within the Group s Employee Share Plan arrangements Relationship between the remuneration policy and Company performance The following table provides the key performance measures since the Group was listed in 2016: Year Revenue EBIT NPAT Dividends per share EPS Share price 30 June $000 $000 $000 cents cents $ ,520 11,018 7, $ ,716 14,817 9, $1.05 FY18 executive incentive outcomes 32 QANTM INTELLECTUAL PROPERTY LIMITED

35 DIRECTORS REPORT 8. Remuneration Report (Audited) (continued) Short Term Incentive Plan Only one executive participated in the STI plan for part of FY18. Mr Cleaver received an STI payment based on achievement of KPIs agreed with the Managing Director and CEO. These were assessed at the end of FY18 when, based on the recommendation of the Managing Director and CEO, the Board approved a payment of $51,200. The following table provides details of the proportion of the STI that vested: Name STI Opportunity % Achieved % Forfeited M Cleaver 20% of TFR 16% 4% Mr Cleaver s STI payment was based on a combination of Company performance and achievement of individual KPIs, based on business improvement initiatives and successful M&A activity, since his commencement as CFO on 30 August These KPIs were assessed by the PRCC and were chosen to drive objectives of the business. Long Term Incentive Plan There are currently no participants in the LTI Plan, and therefore no performance rights vested during FY18. Mr Howe's participation ceased on 30 August Executive remuneration mix The relative proportions of KMP remuneration that are linked to performance: Executive Director Fixed remuneration Remuneration linked to performance Mr Leon Allen 100% 100% - - Executive Officers Mr Warren Howe 1 100% 87% - 13% Mr Martin Cleaver 2 86% - 14% - Mr James Cherry 100% 100% - - Mr Michael Wolnizer 100% 100% - - Mr David Webber 100% 100% - - Mr Adam Sears 100% 100% - - Mr Christopher Jordan 100% 100% - - ANNUAL REPORT

36 DIRECTORS REPORT 8. Remuneration Report (Audited) (continued) 8.6. Key terms of employment contracts Employment contracts formalising the employment of the KMP are set our below: Terms of agreement Base salary 1 Notice period Executive Director Mr Leon Allen 3 years (31 Aug Aug 2019) $232,648 6 months Executive Officers Mr Martin Cleaver 30 August 2017 to unspecified date $292, weeks Mr James Cherry 3 years (31 Aug Aug 2019) $232,648 6 months Mr Michael Wolnizer 3 years (31 Aug Aug 2019) $232,648 6 months Mr David Webber 3 years (31 Aug Aug 2019) $232,648 6 months Mr Adam Sears 3 years (31 Aug Aug 2019) $232,648 6 months Mr Christopher Jordan 3 years (31 Aug Aug 2019) $232,648 6 months Where the terms of the agreement indicate a specified end date, this is the minimum period of engagement, after which employment continues unless otherwise terminated. 1 Excluding superannuation. Subject to annual Consumer Price Index adjustments Termination arrangements for Mr Warren Howe former CFO and Company Secretary Mr Warren Howe ceased as the CFO and Company Secretary on 30 August In accordance with his contract terms he was paid $75,000, being 3 months in lieu of notice, as well as his statutory entitlements. Rights which were granted to Mr Howe during his employment lapsed on his cessation of employment. 34 QANTM INTELLECTUAL PROPERTY LIMITED

37 DIRECTORS REPORT 8. Remuneration Report (Audited) (continued) 8.8. Remuneration of KMP Non-Executive Directors Mr Richard England Ms Abigail Cheadle Mr Cameron Judson Ms Sonia Petering Executive Director Mr Leon Allen Executive Officers Year Salary and fees $ Short term employee benefits Cash bonus $ Non- Monetary 7 $ Other $ Post employment benefits Superannuation $ Long term Employee benefits Long service and other Leave 5 $ Share based payments $ , , , , , , , , , , , , , , , , , , , , , ,318-18,952-21,768 5, , ,155-8,939-18,065 46, ,096 Mr Warren Howe , ,0004 4, , , ,027 3, ,079 3 Mr Martin Cleaver ,746 46, ,752 4, , Mr James Cherry 231,925-13,169-20,049 4, , ,550-5,944-16,338 17, , Mr Michael Wolnizer 224,318-18,952-22,023 6, , ,946-3,176-6,418 65, , Mr David Webber 221,181-19,112-25,000 7, , ,302-8,939-18, , , Mr Adam Sears 222,156-18,137-25,000 5, , ,692-8,939-18,065 29, , Mr Christopher Jordan 224,318-18,952-21,343 5, , ,155-8,939-18,065 38, ,314 Total $ ANNUAL REPORT

38 DIRECTORS REPORT 8. Remuneration Report (Audited) (continued) 8.8 Remuneration of KMP (continued) Explanatory notes to the table on the preceding page: Mr Judson received $48,000 during FY18 for the provision of M&A and HR consulting services Mr Howe ceased as the CFO and Company Secretary on 30 August The above remuneration is for the period of the year that he was a KMP. Mr Cleaver commenced with the Group as CFO and Company Secretary on 30 August 2017 Represents annual leave and Mr Howe's termination payment The current balance represents the movement during the year. The prior year balance represents long service leave and other leave (comprising contractual entitlements arising on listing of QANTM in August 2016). Mr Wolnizer was appointed to DCC National Management Committee Chair in March 2017 Includes car parking and salary sacrifice of accounting fees KMP from listing date on 31 August No KMP appointed during the period received a payment as part of their consideration for agreeing to hold the position. Bonuses and share-based payments granted as compensation for FY18 Cash bonuses Mr Cleaver received a total cash bonus of $51,200 for FY18 Employee retention rights plan The Company established a retention rights plan to assist with retaining KMPs who were not associated with the pre-ipo owners. Each retention right is capable of conversion into a fully paid share after a two-year vesting period. Vesting is not conditional on any performance conditions, being conditional only by reference to continued service for the two-year vesting period. At the end of FY18 there are no current KMP participants in the retention rights plan. Details of share-based payments granted as compensation to KMP during the current financial year: Name Balance at 1 July 2017 Number granted Number vested Number forfeited Percentage of grant vested Percentage of grant forfeited Balance at 30 June 2018 Warren Howe 15, ,765 0% 100% - No retention rights were granted during FY18. Value of performance share rights granted, exercised and expired / forfeited in FY18 Name Financial year granted Fair value at grant date per right Vested during FY18 Forfeited / expired Accounting value of expired / forfeited Maximum value yet to vest $ % $ $ $ Warren Howe ,796 29, QANTM INTELLECTUAL PROPERTY LIMITED

39 DIRECTORS REPORT 8. Remuneration Report (Audited) (continued) Number of performance share rights granted, exercised and expired / forfeited in FY18 Name Balance at Start of Year Number exercised Vested during FY18 Number forfeited Total Vested & Un-exercised at End of Year Balance at End of Year Warren Howe 15,765-15, KMP equity holdings The number of shares in the Company held during FY18 by each director, and KMP, including a close member of the family of that person or an entity over which the person or the family member has, either directly or indirectly, control, joint control or significant influence, are set out below: Balance at 1 July 2017 Granted as compensati on during the year Received on exercise of rights during the year Other changes during the year Balance at 30 June 2018 Name Number of ordinary shares Number of ordinary shares Number or ordinary shares Number of ordinary shares Number of ordinary shares Mr Richard England 135, ,134 Ms Abigail Cheadle 90, ,090 Mr Cameron Judson 45, ,044 Ms Sonia Petering 45, ,044 Mr Leon Allen 2,037, ,037,227 Mr Warren Howe Mr Martin Cleaver ,000 6,000 Mr James Cherry 2,899, ,899,325 Mr Michael Wolnizer 2,037, ,702 2,045,928 Mr David Webber 2,046, ,046,236 Mr Adam Sears 2,061, ,061,693 Mr Christopher Jordan 2,047, ,047,226 ANNUAL REPORT

40 DIRECTORS REPORT 9. Dividends paid or recommended The following dividend was paid or declared during the period: Interim fully franked ordinary dividend of 2.8 cents per share paid on 28 March 2018: $3,721,200 In respect of the year ended 30 June 2018, the directors resolved to pay a fully franked final dividend of 4.3 cents per share. The record date will be 5 September. As such the dividend has not been included as a liability in these financial statements. The total dividend to be paid is $5.7 million (2017: $7 million). 10. Events after the reporting date On 2 July 2018, the Company finalised the acquisition of the Malaysian intellectual property company, Advanz Fidellis IP Sdn Bhd ( AFIP ) (formerly Advanz Fidelis Sdn Bhd). The acquisition involved an upfront cash payment of AUD 3.05 million with further payments subject to agreed earn-out arrangements over an 18 month period, representing 6.5 times normalised EBITDA. The acquisition forms part of QANTM s willingness to pursue incremental acquisition opportunities that expand the group s intellectual property client base and revenue generation potential. The acquisition supplements the Company s existing South-East Asian operation in Singapore. No other matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 11. Future developments and results A summary of the business strategy, results outlook and priorities is provided at item 6 of this Directors report. 12. Environmental issues The Group's operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory of Australia. 13. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all of those proceedings. 38 QANTM INTELLECTUAL PROPERTY LIMITED

41 DIRECTORS REPORT 14. Rounding of amounts The Company has applied the relief available to it under ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191. Accordingly, amounts in the financial statements have been rounded off to the nearest thousand dollars, or in certain cases, the nearest dollar. 15. Indemnification and insurance of officers and auditors During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the Company secretaries and all executive officers of the Company and of any related body corporate against a liability that could be incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors and officers liability and legal expenses insurance contracts as such disclosure is prohibited under the terms of the contract. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. 16. Non-audit services There were no amounts paid or payable to the auditor for non-assurance services provided during the financial year. 17. Auditor's independence declaration The auditor's independence declaration in accordance with section 307C of the Corporations Act 2001 for the year ended 30 June 2018 has been received and can be found on page 41 of the financial report. ANNUAL REPORT

42 DIRECTORS REPORT 18. Corporate Governance The Board and management of QANTM are committed to conducting the Group s business in an ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Third Edition) (Recommendations) to the extent appropriate to the size and nature of the Group s operations. The Company has prepared a statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company, identifies any Recommendations that have not been followed and provides reasons for not following such Recommendations (Corporate Governance Statement). The Corporate Governance Statement is accurate and up to date as at 28 August 2018 and has been approved by the Board and is available for review on the Company s website ( and will be lodged together with an Appendix 4G at the same time that this Financial Report is lodged with the ASX. This directors report, incorporating the remuneration report, is signed in accordance with a resolution of the Board of Directors. Chairman:... Richard England Dated this 29th day of August QANTM INTELLECTUAL PROPERTY LIMITED

43 AUDITOR S INDEPENDENT DECLARATION Deloitte Touche Tohmatsu ABN Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia DX: 10307SSE Tel: Fax: The Board of Directors QANTM Intellectual Property Limited Level 15, 1 Nicholson Street MELBOURNE VIC August 2018 Dear Board Members QANTM Intellectual Property Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of QANTM Intellectual Property Limited. As lead audit partner for the audit of the financial statements of QANTM Intellectual Property Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Gerard Belleville Partner Chartered Accountant Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 25 ANNUAL REPORT

44 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME as at 30 June Note Service charges 76,511 77,456 Associate charges 25,205 22,064 Total revenue 101,716 99,520 Other income 3 2,899 2,896 Employee benefits expenses (44,756) (45,106) Recoverable expenses (23,382) (19,293) Occupancy expenses 4 (6,485) (6,313) Restructuring and business acquisition expenses 4 (2,304) - Other expenses 4 (10,707) (18,789) Earnings before depreciation and amortisation, finance costs and income tax 16,981 12,915 Depreciation and amortisation (2,164) (1,897) Earnings before finance costs and income tax 14,817 11,018 Finance costs (835) (970) Profit before income tax 13,982 10,048 Income tax expense 5 (4,469) (2,868) Net profit for the year 9,513 7,180 Other comprehensive income, net of income tax Other comprehensive income - - Total comprehensive income for the year 9,513 7,180 Net profit attributable to: Members of the parent entity 9,513 7,180 Total comprehensive income attributable to: Members of the parent entity 9,513 7,180 Earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying notes form part of these financial statements. 42 QANTM INTELLECTUAL PROPERTY LIMITED

45 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2018 Note ASSETS CURRENT ASSETS Cash and cash equivalents 6 3,093 8,340 Trade and other receivables 7 31,578 29,563 Other financial assets Other assets 9 1,239 1,143 Total current assets 35,910 39,315 NON-CURRENT ASSETS Property, plant and equipment 10 2,663 2,332 Intangible assets 11 66,294 67,074 Other assets Total non-current assets TOTAL ASSETS LIABILITIES CURRENT LIABILITIES 68,965 69, , ,793 Trade and other payables 12 9,461 8,073 Provisions 13 6,402 6,454 Borrowings Current income tax liabilities 3,182 3,538 Other financial liabilities Total current liabilities NON-CURRENT LIABILITIES 19,355 18,646 Provisions 13 2,800 2,677 Borrowings 14 11,249 15,095 Deferred income tax liabilities 16 1,751 1,521 Total non-current liabilities TOTAL LIABILITIES NET ASSETS 15,800 19,293 35,155 37,939 69,720 70,854 EQUITY Issued capital , ,798 Reserves 18 (222,612) (222,730) Accumulated losses 19 (1,466) (214) TOTAL EQUITY 69,720 70,854 The accompanying notes form part of these financial statements. ANNUAL REPORT

46 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY as at 30 June Issued Capital Reorganisation Reserve Share Based Payment Reserve Retained Earnings Balance at 1 July (23,607) (23,607) Profit attributable to members of the parent entity Other comprehensive income for the period Total ,180 7, Total comprehensive income for the period ,180 7,180 Transactions with owners in their capacity as owners Capital raising 30, ,827 Shares issued to DCC Partners 202,116 (200,866) - - 1,250 Shares issued to FPA Partners 61, ,266 Employee Share Schemes Equity raising costs net of tax (1,241) (1,241) Dividends paid (4,785) (4,785) Distributions to previous owners (992) (992) Reallocation of retained earnings at reorganisation date - (21,990) - 21,990 - Balance at 30 June ,798 (222,856) 126 (214) 70, Issued Capital Reorganisation Reserve Share Based Payment Reserve Retained Earnings Total Balance at 1 July ,798 (222,856) 126 (214) 70,854 Profit attributable to members of the ,513 9,513 parent entity Other comprehensive income for the period Total comprehensive income for the period ,513 9,513 Transactions with owners in their capacity as owners Employee share schemes Dividends paid (10,765) (10,765) Balance at 30 June ,798 (222,856) 244 (1,466) 69,720 The accompanying notes form part of these financial statements. 44 QANTM INTELLECTUAL PROPERTY LIMITED

47 CONSOLIDATED STATEMENT OF CASH FLOW as at 30 June 2018 Note CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers 105, ,835 Payments to suppliers and employees (89,225) (86,565) Interest and costs of finance paid (781) (1,088) Income tax paid (4,595) (2,024) Net cash generated from operating activities 32 11,298 19,158 CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired - 2,327 Proceeds from disposal of sale of property, plant and equipment Payments for purchase of property, plant and equipment (1,490) (1,311) Purchase of intangible assets (225) (38) Loans to related entities - (507) Net cash provided by / (used in) investing activities (1,715) 1,174 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issue of new shares - 30,827 Proceeds from bank borrowings - 15,026 Repayment of bank borrowings (4,201) (15,942) Repayment of previous owner borrowings - (25,895) Distributions paid to previous owners - (1,039) Forward exchange contracts settlement - (835) Transaction costs relating to issue of new shares - (9,892) Dividends paid (10,765) (4,785) Net cash used in financing activities (14,966) (12,535) Net increase/ (decrease) in cash and cash equivalents (5,383) 7,797 Effects of exchange rate changes on the balance of cash held in foreign currencies Cash and cash equivalents at beginning of year 8, Cash and cash equivalents at end of year 6 3,093 8,340 The accompanying notes form part of these financial statements. ANNUAL REPORT

48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS General Information The financial statements cover QANTM Intellectual Property Limited as a Group, consisting of QANTM Intellectual Property Limited and the entities it controlled at the end of, or during, the year. QANTM Intellectual Property Limited is a listed public company limited by shares, incorporated and domiciled in Australia. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Statement of Compliance These financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). A description of the nature of the Group's operations and its principal activities are included in the Directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 28 August Basis of Preparation The financial statements have been prepared on an accruals and historical cost basis except for certain financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for assets. The financial statements are presented in Australian dollars (unless otherwise noted), which is QANTM's functional and presentation currency. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. 1 Summary of Significant Accounting Policies (a) Group reorganisation reserve The reserve relates to transactions that have historically been accounted for as a group reorganisation of entities under common control (Davies Collison Cave Pty Ltd, Davies Collison Law Pty Ltd and Davies Collison Cave Asia Pte Ltd) at predecessor carrying value. The assets and liabilities of these entities have not been remeasured at fair value, nor has any goodwill arisen. The difference between the fair value of consideration given and the carrying values of the assets and liabilities acquired by QANTM Intellectual Property Limited has been recognised within equity as part of the "Group Reorganisation Reserve". (b) Principles of Consolidation The consolidated financial statements incorporate all the assets, liabilities and results of the parent QANTM Intellectual Property Limited and all of the subsidiaries. Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and can affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 26. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. 46 QANTM INTELLECTUAL PROPERTY LIMITED

49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (b) Principles of Consolidation (continued) Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as non-controlling interests. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary s net assets on liquidation at either fair value or at the non-controlling interests proportionate share of the subsidiary s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. (c) Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is obtained, whereby the fair value of the identifiable assets acquired and liabilities assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. After initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in profit or loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of the sum of: i) the consideration transferred; ii) any non-controlling interest (determined under either the full goodwill or proportionate interest method); and iii) the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Fair value remeasurements in any pre-existing equity holdings are recognised in profit or loss in the period in which they arise. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. ANNUAL REPORT

50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (c) Business combinations (continued) Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested for impairment annually and is allocated to the Group's cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored and not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill. (d) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue recognition relating to the provision of services, including associate charges, is determined with reference to the stage of completion of the transaction at the end of the reporting period and where the outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent the related expenditure is recoverable. Total revenue comprises Service Charges and Associate Charges. Service Charge revenue is earned by providing professional services to clients for ongoing protection of intellectual property. Associate Charge revenue includes revenue from recharging, as Principal, the cost of arranging for intellectual property protection in other jurisdictions and revenue from recharging the fees of barristers and other experts. Other revenue is recognised when it is received or when the right to receive payment is established. All revenue is stated net of the amount of GST. Interest revenue Interest is recognised using the effective interest method. Work in progress Work in progress (WIP) represents costs incurred and profit recognised on client assignments and services that are in progress at balance date. WIP is valued at net realisable value after providing for any foreseeable losses. WIP older than 90 days is reviewed and any WIP considered not recoverable is written off. 48 QANTM INTELLECTUAL PROPERTY LIMITED

51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (e) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of QANTM, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (f) Recoverable expenses Recoverable expenses are payments such as to foreign agents that lodge applications in countries primarily outside of those countries in which the Group acts directly before the national intellectual property office, are recognised as an expense as incurred and, to the extent recoverable, as revenue. (g) Fair Value of Assets and Liabilities The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group considers the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117 and measurements that have some similarities to fair value but are not fair value, such as value in use in AASB 136 'Impairment of Assets'. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. ANNUAL REPORT

52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (h) Foreign currency transactions and balances The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group entity are expressed in Australian dollars ('$'), which is the functional currency of the Company and the presentation currency for the consolidated financial statements. In preparing the financial statements of each individual group entity, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise. For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated into Australian dollars as follows: income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used; assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the balance date; and all resulting exchange differences are recognised in other comprehensive income. (i) Income tax The current tax payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group. Consequently, all members of the tax-consolidated group will be treated as a single entity for Australian income tax purposes. The head company of the tax consolidated group will be QANTM Intellectual Property Limited. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax consolidated group using the 'separate taxpayer within group' approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (parent in the tax-consolidated group). Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Adjustments are made for transactions and events occurring within the tax-consolidated group that do not give rise to a tax consequence for the group or that have a different tax consequence at the head entity level of the group. 50 QANTM INTELLECTUAL PROPERTY LIMITED

53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (i) Income tax (continued) Deferred tax Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. Adjustments are made for transactions and events occurring within the tax-consolidated group that do not give rise to a tax consequence for the Group or that have a different tax consequence at the head entity level of the Group. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than because of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments except where the Group can control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the way the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the Statement of Profit or Loss and Other Comprehensive Income, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity. The change in legal structure on listing caused a change in the tax status of the operations. This change in tax status has been included in profit and loss for the period. Transactions and events with tax consequences which are recognised outside of the profit and loss statement, the impact of the change in tax status is also recognised outside of the profit and loss statement. Deferred tax measurement relating to indefinite life intangible assets The IFRS Interpretations Committee had issued its agenda decision relating to the expected manner of recovery of indefinite life intangible assets. The Committee was asked to clarify how an entity determines the expected manner of recovery of an intangible asset with an indefinite useful life for deferred tax measurement purposes. The Committee indicated that the fact that an entity does not amortise an indefinite life intangible asset does not necessarily mean that the carrying amount will be recovered only through sale and not use. Therefore the entity should determine the expected manner of recovery of the carrying amount of the intangible asset. The Group has implemented this guidance. ANNUAL REPORT

54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (j) Cash and cash equivalents Cash and cash equivalents include cash on hand and at banks, short term deposits with an original maturity of three months or less held at call with financial institutions. Bank overdrafts also form part of cash equivalents for the purpose of the consolidated statement of cash flows and are presented within current liabilities on the consolidated statement of financial position. (k) Financial instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired. Trade and other receivables include amounts due from customers for services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Financial liabilities Financial liabilities include trade payables, other creditors and loans from third parties. Non derivative financial liabilities are recognised at amortised cost using the effective interest method. Trade and other payables represent the liabilities for goods and services received that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 90 days of recognition of the liability. Trade accounts payable comprise the original debt less principal payments plus, where applicable, any accrued interest. Financial liabilities are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. The carrying amount of financial assets is reviewed annually by the directors' to assess whether there is any objective evidence that a financial asset is impaired. Where such objective evidence exists, the Company recognises impairment losses. 52 QANTM INTELLECTUAL PROPERTY LIMITED

55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (l) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives. Property, plant and equipment, excluding freehold land, is depreciated on a straight-line basis over the assets useful life to the Group, commencing when the asset is ready for use. Leased assets and leasehold improvements are amortised over the shorter of either the unexpired period of the lease or their estimated useful life. The estimated useful lives used for each class of depreciable asset are shown below: Class of fixed asset Leasehold improvements Motor Vehicles Office Equipment Assets under finance Estimated useful lives Term of lease 3-5 years 5-15 years Term of lease An item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. (m) Intangibles Intangible assets acquired as part of a business combination, are measured at their fair value at the date of acquisition. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and it is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit and loss and not subsequently reversed. ANNUAL REPORT

56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (m) Intangibles (continued) Intangible assets acquired separately Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Customer Relationships Customer relationships are the assessed value of the supply of goods and services that exist at the date of acquisition. In valuing customer relationships, consideration is given to historic customer retention and decay statistics, projected future cash flows and appropriate capital charges. Customer relationships are amortised over a period of 20 years. The estimated useful lives, residual values and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Brand Names Brand names are intangible assets with indefinite useful lives that are acquired separately and are carried at cost less accumulated impairment losses. Brand names are not amortised but are tested for impairment annually. Goodwill Goodwill is not amortised but is tested for impairment annually and when there are indicators of impairment. Goodwill is allocated to the Group's cash generating units or groups of cash generating units, which represent the lowest level at which goodwill is monitored but where such level is not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold. Amortisation rates Class of intangibles Amortisation rate Amortisation basis Client relationships 20 years Straight line Software 5 years Straight line Derecognition of intangible assets An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in profit or loss when the asset is derecognised. 54 QANTM INTELLECTUAL PROPERTY LIMITED

57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (n) Impairment of assets Goodwill and other assets that have an indefinite useful life are not amortised but are tested annually for impairment in accordance with AASB 136 'Impairment of Assets'. Assets subject to annual depreciation or amortisation are reviewed for impairment whenever events or circumstances arise that indicate that the carrying amount of the asset may be impaired. An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and value in use. For the purposes of impairment testing, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash generating units). (o) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. (p) Leases Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leases are classified as either operating lease or finance lease based on the transfer of significant risks and rewards of ownership. If lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. ANNUAL REPORT

58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (q) Employee benefits Short and long-term employee benefit Provision is made for the Group s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as part of current trade and other payables in the statement of financial position. Other long-term employee benefits Provision is made for employees long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on government bonds that have maturity dates that approximate the terms of the obligations. Upon the remeasurement of obligations for other long-term employee benefits, the net change in the obligation is recognised in profit or loss as part of employee benefits expense. The Group s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. Defined contribution superannuation benefits All employees of the Group receive defined contribution superannuation entitlements, for which the Group pays the fixed superannuation guarantee contribution (currently 9.5% of the employee s average ordinary salary) to the employee s superannuation fund of choice. All contributions in respect of employees defined contribution entitlements are recognised as an expense when they become payable. The Group s obligation with respect to employees defined contribution entitlements is limited to its obligation for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the Group s statement of financial position. (r) Goods and services tax (GST) Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payable are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as part of receivables or payables in the consolidated statement of financial position. Cash flows in the consolidated statement of cash flows are included on a gross basis and the GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. 56 QANTM INTELLECTUAL PROPERTY LIMITED

59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies (continued) (s) Share based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. (t) Borrowing costs All borrowing costs are amortised over the term of the borrowings. (u) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (v) Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. (w) Rounding of Amounts The Company has applied the relief available to it under ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191. Accordingly, amounts in the financial statements have been rounded off to the nearest thousand dollars, or in certain cases, the nearest dollar. (x) Critical Accounting Estimates and Judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events; management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. ANNUAL REPORT

60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Statement of Significant Accounting Policies (continued) (x) Critical Accounting Estimates and Judgements (Continued) The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are discussed below: Key judgement and sources of estimation uncertainty Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in Note 1(n).Determining whether goodwill is impaired requires an estimation of the value-in-use of the cash generating unit to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. Details of the impairment testing are in Note11. (y) New Accounting Standards and Interpretations Accounting Standards issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting periods beginning on or after 1 January 2018). The Standard will be applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments and revised recognition and derecognition requirements for financial instruments. The key changes that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, upfront accounting for expected credit loss, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. The Group s assessment of the requirements of AASB 9 is that it will not have a material impact upon adoption and no transition adjustment is required. AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning on, or after 1 January 2018, as deferred by AASB : Amendments to Australian Accounting Standards - Effective Date of AASB 15). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: identify the contract(s) with a customer; identify the performance obligations in the contract(s); determine the transaction price; allocate the transaction price to the performance obligations in the contract(s); and recognise revenue when (or as) the performance obligations are satisfied. 58 QANTM INTELLECTUAL PROPERTY LIMITED

61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Statement of Significant Accounting Policies (continued) (y) New Accounting Standards and Interpretations (continued) The Group has progressed its assessment of each of the five-steps outlined above for the key different forms of contracts with customers across the business. As a result, the directors anticipate an immaterial financial impact for the year ended 30 June Critical to the assessment is the determination of when the performance obligation created by a contract with a customer (defined as an agreement between QANTM and its customer that creates enforceable rights and obligations) is satisfied. The Group continues to complete a review of certain customer arrangements however there is not expected to be material change to the impact assessment. The Group will adopt the standard from 1 July 2018 and has elected to apply the standard in the year of application, thereby recognise the cumulative effect of applying IFRS 15 as an adjustment to the opening balance of equity at 1 July AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019). When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new Standard include: recognition of a right-to-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); depreciation of right-to-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability using the index or rate at the commencement date; by applying a practical expedient, a lessee is permitted to elect not to separate non-lease components and instead account for all components as a lease; and additional disclosure requirements. The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. The primary impact to the Group of the adoption of AASB 16 is expected to be the treatment of premises and leased equipment, whereby the adoption will increase the lease liability and right of use asset. The expense relating to lease payments will reduce and there will be an increase in interest costs. It is not yet possible to provide an estimate of the impact of the above changes (also refer note 31). ANNUAL REPORT

62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Segment Information Basis for segmentation AASB 8 requires operating segments to be identified based on internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Group operates in two geographic locations, which are its reportable segments. The Group has identified its operating segments based on geographical locations being Australia and Asia. The Asian operating segment is considered immaterial and does not currently meet the reporting criteria per AASB 8 Operating Segments, therefore the Group will only report one operating segment, being Australia, in its financial reports. If the Asian operating segment meets the reporting criteria in future periods this information will be disclosed separately in accordance with AASB 8. Major customers No single customer contributed 10% or more to the Group s revenue during either 2018 or Other Income Note Foreign exchange gains Other income 2,105 2,048 2,899 2,896 Other income mainly comprises income received from DCC s strategic alliance with CPA Global Limited (CPA). CPA specialises in the provision of patent, design and trade mark maintenance services. Under the agreement with CPA, where DCC clients elect to obtain these services from CPA, DCC receives a commission based on the fees these clients generate for CPA. 60 QANTM INTELLECTUAL PROPERTY LIMITED

63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June 2018 Note Expenses The result for the year includes the following specific expenses: Operating lease expenses Operating leases have been taken out for the rental of premises. In the statement of Profit and Loss, these expenses form part of Occupancy expenses. 5,801 5,505 Restructuring and business acquisition expenses - Restructuring costs 1, Business acquisition costs 447-2,304 - Other expenses - Travel and entertainment 2,455 2,042 - Technology costs 3,338 3,597 - Marketing 1,402 1,231 - IPO Costs - 6,601 - Other expenses 3,512 5,318 10,707 18,789 5 Income Tax Expense (a) The major components of tax expense comprise: Current tax expense 4,225 5,599 Deferred tax expense 5(b) 230 (2,731) Under/over provision from previous years 14 - Income tax expense 5(c) 4,469 2,868 ANNUAL REPORT

64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note Income Tax Expense (continued) (b) Deferred income tax expense included in income tax expense comprises: (Increase)/decrease in deferred tax asset 616 (2,524) Decrease in deferred tax liability (386) (207) 230 (2,731) (c) Numerical reconciliation of income tax expense to prima facie tax payable: Profit before income tax 13,982 10,048 Income tax expenses calculated at 30% 4,195 3,014 Tax effect of differential corporate tax rate - (21) Add tax effect of: - Non-deductible expenses Other 46 5 Less tax effect of: - Additional deferred tax recognised during the period - (140) - Non-assessable income - (317) Income tax expense 4,469 2,868 The applicable weighted average effective tax rates are as follows: 32% 29% 6 Cash and Cash Equivalents Cash on hand 10 9 Cash at bank 3,083 8,331 3,093 8, QANTM INTELLECTUAL PROPERTY LIMITED

65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note Trade and Other Receivables CURRENT Trade receivables 7(a) 31,712 29,726 Less: Provision for impairment of trade receivables 7(b) (615) (626) 31,097 29,100 Other receivables Total current trade and other receivables 31,578 29,563 (a) Aged analysis The ageing analysis of current trade receivables is as follows: 0-30 days 14,062 13, days 5,767 6, days (past due not impaired) 3,941 3, days (past due not impaired) 7,420 5, days (past due and impaired) ,712 29,726 (b) Impairment of trade receivables Reconciliation of changes in the provision for impairment of trade receivables is as follows: Balance at beginning of the year Additional provisions recognised Additions through business combinations Receivables written off during the year as uncollectable (536) (598) Balance at end of the year Other Financial Assets CURRENT Financial assets at fair value through profit or loss Other Assets CURRENT Prepayments 1,184 1,097 Deferred borrowing costs ,239 1,143 NON-CURRENT Deferred borrowing costs Amortised over three years ANNUAL REPORT

66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10 Property, plant and equipment Note Leasehold improvements At cost 1,987 1,802 Accumulated depreciation (1,782) (1,263) Net carrying value of leasehold improvements Motor vehicles At cost - - Accumulated depreciation - - Net carrying value of motor vehicles - - Office equipment At cost 2,800 2,524 Accumulated depreciation (1,177) (1,940) Net carrying value office equipment 1, Assets under finance At cost 1,395 1,885 Accumulated depreciation (560) (676) Net carrying value of assets under finance 835 1,209 Total property, plant and equipment 2,663 2,332 (a) Movements in carrying amounts of property, plant and equipment Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Assets 2017 Leasehold Improvements 000's $ Motor Vehicles 000's $ Office Equipment 000's $ under finance 000's $ Total 000's $ Opening balance at 1 July ,377 Additions at cost ,054 1,292 Additions through business combinations Disposals - written down value - (703) (4) - (707) Depreciation expense (453) - (282) (314) (1,049) Closing balance at 30 June ,209 2, Opening balance at 1 July ,209 2,332 Additions at cost 185-1, ,490 Additions through business combinations Disposals - written down value Depreciation expense (519) - (237) (403) (1,159) Closing balance at 30 June , , QANTM INTELLECTUAL PROPERTY LIMITED

67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note Intangible Assets Goodwill Acquisitions through business combinations 45,836 45,836 Accumulated impairment losses - - Net carrying value of goodwill 45,836 45,836 Brand names Acquisitions through business combinations 2,700 2,700 Accumulated impairment losses - - Net carrying value of brand names 2,700 2,700 Client relationships Balance at beginning of period 19,300 - Acquisitions through business combinations - 19,300 Accumulated amortisation (1,797) (825) Net carrying value of client relationships 17,503 18,475 Software Balance at beginning of period 86 - Additions at cost Acquisitions through business combinations - 25 Accumulated amortisation (56) (23) Net carrying value of software Total Intangibles 66,294 67,074 (a) Movements in carrying amounts of intangible assets Goodwill 000's $ Brand Name 000's $ Client Relationship 000's $ Software 000's $ Total 000's $ 2017 Opening balance at 1 July Additions Additions through business combinations 45,836 2,700 19, ,861 Amortisation - - (825) (23) (848) Closing balance at 30 June ,836 2,700 18, , Opening balance at 1 July ,836 2,700 18, ,074 Additions Additions through business combinations Amortisation - - (972) (33) (1,005) Closing balance at 30 June ,836 2,700 17, ,294 ANNUAL REPORT

68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11 Intangible Assets (continued) (b) Cash-generating unit The following intangible assets including indefinite life intangible assets goodwill and brand names are allocated to the FPA cash generating unit (CGU) for impairment testing purposes: Goodwill 45,836 45,836 Brand names 2,700 2,700 Customer relationships (at amortised cost) 17,503 18,475 Software ,294 67,074 (c) Impairment testing In accordance with the Group s accounting policies, the Group performs its impairment testing at least annually for intangible assets with indefinite useful lives. More frequent reviews are performed for indications of impairment of all the Group s assets including customer relationships and operating assets. In accordance with the Group s accounting policies, the Group has evaluated whether the recoverable amount of the FPA CGU exceeds its carrying amount. The recoverable amount is the higher of an asset s fair value less costs of disposal (FVLCD) and its value in use (VIU). VIU is the present value of the future cash flows expected to be derived from the CGU. The FVLCD methodology was adopted for the prior year assessment. For the current year the VIU model has been used to test the impairment of intangible assets, including goodwill. Key assumptions The recoverable amount of the FPA CGU is based on a VIU calculation which projects future cash flows over a five year period with the period beyond five years extrapolated using an estimated growth rate. The cash flows are discounted at an appropriate rate to derive the recoverable amount. The following key assumptions were used: Revenue growth of 3.5% - 5% from FY2019 to FY2023; Overhead costs based on inflationary impacts offset by ongoing cost efficiencies; In the period beyond 5 years a long term growth rate of 3.0%; Post-tax discount rate of 11.5% (Pre-tax discount 16.4%). The assumptions are based on the Group s forecast operating and financial performance of FPA reflecting prior performance, current growth rate achieved and the historic growth of patent applications in Australia. The discount rate is derived from the Group s weighted average cost of capital, adjusted for varying risk profiles. The key assumptions used in the VIU calculations represent management's best estimate at 30 June Based on the recoverable amount of the FPA CGU exceeding its aggregate carrying amount at 30 June 2018 there was no impairment charge. Management s sensitivity analysis of adjusting the VIU calculation for the following changes in key assumptions whilst holding all other assumptions constant indicate the aggregate carrying amount of the FPA CGU exceeding its recoverable amount in a range of $3 million to $5 million: An increase in the discount rate of 0.5% A decrease in the long term growth rate of 1% A decrease in the EBITDA margin of 1% Consequentially, the calculation is sensitive to reasonably possible changes in the key assumptions which may cause the carrying value of the FPA CGU to exceed its recoverable amount and result in an impairment charge. 66 QANTM INTELLECTUAL PROPERTY LIMITED

69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June Trade and Other Payables CURRENT Trade payables 5,389 5,511 GST payable Other payables and accruals 3,969 2,307 Total current trade and other payables 9,461 8, Provisions CURRENT Employee benefits 6,311 6,423 Lease incentive provisions Total current provisions 6,402 6,454 NON-CURRENT Employee benefits Lease incentive provisions 2,471 2,294 Total non-current provisions 2,800 2,677 (a) Movement in carrying amounts Employee Benefits 000's $ Lease Incentive Provisions 000's $ Total 000's $ Opening balance at 1 July ,556 2,297 5,853 Additional provisions 4, ,733 Additional provisions through business combinations Provisions used (2,361) - (2,361) Closing balance at 30 June ,806 2,325 9,131 Additional provisions 3, ,336 Provisions used (3,234) (31) (3,265) Closing balance at 30 June ,640 2,562 9,202 ANNUAL REPORT

70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14 Borrowings Note CURRENT Leases 31(a) Total current borrowings NON-CURRENT Bank loans 14(b) 11,000 14,600 Leases 31(a) Total non-current borrowings 11,249 15,095 Total borrowings 11,475 15,676 (a) Total current and non-current secured borrowings Bank loans 11,000 14,600 Leases 475 1,076 11,475 15,676 (b) Summary of borrowing arrangements The Company s banking facilities with ANZ consist of: $25 million revolving overdraft sub-facility and cash advance sub-facility (Facility A); $4.5 million asset finance facility (Facility B); and $30 million acquisition facility (Facility C). Together, these facilities are referred to as the Banking Facilities. Facilities A, B and C have a maturity date of 31 July All facilities have a variable interest rate based on bank bill swap rate (BBSY) plus a margin calculated with reference to the net leverage ratio. In addition, line fees calculated based on the relevant facility limit are payable on Facility A and Facility C. The facility agreement under which banking facilities have been made available contains financial covenants typical for facilities of this nature. The covenants which are tested quarterly (unless otherwise specified in the facility agreement), relate to the leverage ratio, fixed charge cover ratio, working capital ratio and debt/debt + equity ratio. The Company has operated within these covenants during the period Note Amount unutilised 48,025 43,824 Amount utilised 11,475 15,676 59,500 59,500 (c) Assets pledged as security for borrowings The banking facilities are secured by a security interest granted by the Group over all of their assets in favour of ANZ as well as cross guarantees and indemnities between the Group members. 68 QANTM INTELLECTUAL PROPERTY LIMITED

71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note Other Financial Liabilities CURRENT Financial liabilities at fair value through profit or loss Deferred Income Tax Deferred Tax Asset Opening balance at 1 July 2017 Opening Balance Recognised in Profit or Loss Closing Balance Black hole expenses 2,140 (548) 1,592 Other assets 87 (76) 11 Trade payables Provisions 2,915 (8) 2,907 Closing balance at 30 June ,332 (616) 4,716 Deferred Tax Liability Opening balance at 1 July 2017 Opening Balance Recognised in Profit or Loss Closing Balance Trade receivables (99) (32) (131) Other assets - (72) (72) Property, plant and equipment (223) 125 (98) Intangible assets (6,352) 291 (6,061) Trade payables (179) 74 (105) Closing balance at 30 June 2018 (6,853) 386 (6,467) Net deferred tax (1,521) (230) (1,751) ANNUAL REPORT

72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17 Issued Capital Fully Paid Ordinary Shares 293, ,798 (a) Ordinary shares At the beginning of the reporting period 132,900, No No. Shares issued during the year: Shares issued to DCC Partners - 91,043,118 Shares issued to FPA Partners - 27,597,152 Capital Raising - 13,886,260 Employee Share Schemes - 373,750 At the end of the reporting period 132,900, ,900,281 The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of the Company. On a show of hands at meetings of the Company, each holder of ordinary shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote. The Company does not have authorised capital or par value in respect of its shares. (b) Employee share schemes No employee shares were issued during the year. (c) Capital Management Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long-term shareholder value and ensure that the Group can fund its operations and continue as a going concern. The Group s debt and capital include ordinary share capital and financial liabilities, supported by financial assets. Other than its banking covenants, the Group is not subject to any externally imposed capital requirements. Management effectively manages the Group s capital by assessing the Group s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the date of the Prospectus. 70 QANTM INTELLECTUAL PROPERTY LIMITED

73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18 Reserves Note Share based payment reserve Opening balance Recognition of share-based payments (a) Reorganisation reserve Opening balance (222,856) - Shares issued to DCC Partners - (202,419) Reallocation of retained earnings at reorganisation date - (21,990) Tax effect on reorganisation reserve - 1,553 18(b) (222,856) (222,856) Total reserves (222,612) (222,730) (a) Share based payment reserve The share based payment reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. (b) Reorganisation reserve As described in Note 1(a), the restructure has been accounted for using the net carrying values of the DCC partnership prior to the reorganisation. The difference between the fair value of shares issued (based on market value) and the carrying values of net assets acquired has been recognised as a reorganisation reserve. 19 Accumulated losses Opening balance (214) (23,607) Net profit attributable to the shareholders 9,513 7,180 Ordinary dividends paid (10,765) (4,785) Distribution to previous owners - (992) Reallocation of retained earnings at reorganisation date - 21,990 Closing balance (1,466) (214) ANNUAL REPORT

74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June Dividends The following dividends were declared and paid: Interim Dividend fully franked ordinary 3.6 cents paid 31 March , cents paid 28 March ,721 - Final Dividend fully franked ordinary 5.3 cents paid 4 October ,044 - In respect of the year ended 30 June 2018, the directors resolved to pay a fully franked final dividend of 4.3 cents per share. The record date will be 5 September. As such the dividend has not been included as a liability in these financial statements. The total dividend to be paid is $5,715,000. There are no income tax consequences arising from this dividend at 30 June Franking account The franking credits available for subsequent financial years at a tax rate of 30% 3, The ability to use the franking credits is dependent upon the Company's future ability to declare dividends. 21 Earnings Per Share The calculation of Statutory EPS is presented below: 2018 cents per share 2017 cents per share Total basic earnings per share Total diluted earnings per share (a) Reconciliation of earnings used in calculating earnings per share 's $ 's $ Profit for the period attributable to Parent entity 9,513 7,180 (b) Earnings used to calculate overall earnings per share Earnings used to calculate overall earnings per share 9,513 7, QANTM INTELLECTUAL PROPERTY LIMITED

75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21 Earnings Per Share (continued) (c) Weighted average number of shares used as the denominator in calculation of earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share 132,900, ,900,281 Adjustments for calculation of diluted earnings per share: - Retention rights 146, ,158 Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 133,046, ,062, No No. (d) Information concerning the classification of securities Retention rights granted to employees under the Group's executive and employee share option plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The retention rights have not been included in the determination of basic earnings per share. 22 Share-based Payments The Company has established a long term incentive plan (LTIP) in order to assist in the motivation and retention of key employees. The LTIP is designed to align the interests of eligible employees more closely with the interests of shareholders by providing an opportunity for eligible employees to receive an equity interest in the Company. Each retention right issued under the LTIP converts into one ordinary share of QANTM on exercise. No amounts are paid or payable by the recipient of the retention right, and the retention rights carry neither rights to dividends nor voting rights. The retention rights are treated as in substance options and accounted for as share-based payments. Prior to listing, the Company issued 162,158 retention rights to 13 senior employees. Each right is capable of conversion into a fully paid share after a two year vesting period. Vesting is not conditional on any performance conditions, only time and continued service. The Group has the following share-based payment schemes: Balance at the beginning of the year 162,158 - Number issued / (forfeited) during the financial year (15,765) 162,158 Balance at the end of the year 146, , No No. Exercisable at the end of the year 's $ 's $ Share based payment expense recognised during the year ANNUAL REPORT

76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22 Share-based Payments (continued) Set out below are summaries of the rights granted under the plan: Grant date Expiry Date and Vesting Date Grant Date Fair Value $ Balance at the start of the year Granted Exercised Expired/ forfeited Balance at the end of the year 30 August August , (15,765) 146,393 Employee Share Trust (EST) The company has established an employee share trust (EST) for the benefit of key employees. The EST is intended to provide an incentive for participating employees to maximise their contributions to the Company and to enable them to share in the future growth in the value of the Company. Under the EST, selected key employees, nominated by the Company will be provided with an opportunity to acquire a beneficial interest in fully paid QANTM shares (through the EST). Contributions are paid by QANTM to the EST, which will use those funds to effect an acquisition of QANTM shares for the benefit of the relevant employee under the terms of the EST. The shares will generally be acquired on market by the trustee of the EST (which is not a member of the QANTM Group), but may be issued by QANTM to the trustee of the EST. The employee will not be able to effect a sale of the shares whilst they are in the EST. 23 Financial Risk Management Objectives, policies and processes The Group's activities expose it to a variety of financial risks: liquidity risk, credit risk and market risk (including foreign currency risk and interest rate risk). The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and foreign exchange and ageing analysis for credit risk. Liquidity risk Liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group may obtain payment in advance or restrict the services offered where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, as disclosed in the statement of financial position and notes to the financial statements. The Group does not have any material credit risk exposure to any single debtor or group of debtors and does not hold any collateral. 74 QANTM INTELLECTUAL PROPERTY LIMITED

77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23 Financial Risk Management (continued) Market risk Foreign currency risk A substantial portion of the Group's revenues and cash flows are generated in USD. The majority of the Group's key expenses, including rent and wages, are payable in AUD. Accordingly, any appreciation of the AUD against the USD as well as other adverse exchange rate movements, could have an adverse effect on the Company's future financial performance and position. If the AUD appreciates against the USD, the Group's cash receipts in AUD could be lower which could result in a lower net profit for the Group. The Group has historically used hedging to reduce the impact of currency movements in USD denominated invoices between the time of invoicing and receipt of payment. The Group has entered into hedging where appropriate to set or cap the USD to AUD conversion rate. The Group's net asset exposure in AUD at reporting date was as follows: AUD USD 30 June 2017 Asset exposure 15,566 11,967 Liabilities exposure (2,964) (2,279) Net exposure 12,602 9, June 2018 Asset exposure 15,352 11,368 Liabilities exposure (3,228) (2,390) Net exposure 12,124 8,978 Sensitivity analysis Sensitivity analysis of the Group s Australian dollar denominated profit and loss statement to foreign currency movements: Increase / (Decrease) 2018 EBITDA impact 000's $ 2018 NPAT impact 000's $ Change in AUD/USD exchange rate 1 cents / (1 cents) (0.5) / 0.5 (0.4) / 0.4 Interest rate risk The Group's main interest rate risk arises from its borrowings. Borrowings issued at variable rates expose the Group to interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group does not enter into any derivative financial instruments to manage its exposure to interest rate risk. Liquidity risk Liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. ANNUAL REPORT

78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23 Financial Risk Management (continued) At the reporting date, the Group had the following variable rate borrowings outstanding: Weighted average interest rate % Balance Weighted average interest rate 000's $ % Balance Bank loans , ,600 Net exposure to cash flow interest rate risk 11,000 14, 's $ Effective Average Fixed Interest Rate Payable Notional Principal Maturity of notional amounts % % $000 $000 Less than 1 year to 2 years ,000 14,600 2 to 5 years QANTM INTELLECTUAL PROPERTY LIMITED

79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23 Financial Risk Management (continued) The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1 Level 2 Level 3 Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Unobservable inputs for the asset or liability. The Board considers that the carrying amount of financial assets and financial liabilities recognised in the financial statements approximate their fair value. The table below shows the assigned level for each asset and liability held at fair value by the Group: 30 June 2017 Level 1 $ Level 2 $ Level 3 $ Liabilities Forward exchange contracts Total liabilities Total $ 30 June 2018 Liabilities Forward exchange contracts Total liabilities There were no transfers between levels during the financial year. 24 Fair Value Measurement Forward exchange contracts Valuation techniques and key inputs Discounted cash flow method is used - Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties. ANNUAL REPORT

80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25 Parent Entity Set out below is the supplementary information about the parent entity Statement of Financial Position Current assets Total Assets 87,561 88,019 Current liabilities 3,954 4,843 Total Liabilities 3,955 4,843 Equity Issued capital 91,682 91,682 Share based payment reserve Retained earnings (8,320) (8,634) Total Equity 83,606 83,176 Statement of Profit or Loss and Other Comprehensive Income Total profit or loss for the year 11,079 (2,232) Total comprehensive income 11,079 (2,232) Guarantees The parent entity has entered into a Deed of Cross-Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries and the subsidiaries guarantee the debts of the parent entity. Further details of the Deed of Cross-Guarantee and the entity subject to the deed are disclosed in Note 27. Contingent liabilities At 30 June 2018 and 30 June 2017, bank guarantees in respect of property leases were maintained. Further details of the contingent liabilities are disclosed in Note 30. Contractual commitments The parent entity does not have any material contractual commitments as at 30 June 2018 or 30 June QANTM INTELLECTUAL PROPERTY LIMITED

81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 Interests in Subsidiaries Composition of the Group Principal place of business / Country of Incorporation Percentage Owned (%) Percentage Owned (%) Subsidiaries: Davies Collison Cave Pty Ltd 2 Australia Davies Collison Cave Law Pty Ltd 2 Australia Davies Collison Cave Asia Pte Ltd Singapore FPA Patent Attorneys Pty Ltd 2 Australia QIP Services Pty Ltd 2 Australia QIP Nominees Pty Ltd 2 Australia The percentage of ownership interest held is equivalent to the percentage voting rights for all subsidiaries. Members of the cross guarantee group. Refer to Note Deed of Cross-Guarantee The members of the Group party to the deed of cross guarantee are detailed in Note 26. The consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position of the entities party to the deed of cross guarantee are: Statement of Comprehensive Income Service charges 73,229 74,978 Associate charges 24,818 22,064 Total revenue 98,047 97,042 Other income 2,896 2,883 Employee benefits expense (42,722) (43,817) Recoverable expenses (22,954) (19,293) Occupancy expenses (6,056) (5,963) Restructure costs (2,304) - Other expenses (10,142) (18,191) Earnings before depreciation and amortisation, finance costs and income tax 16,765 12,661 Depreciation and amortisation (2,048) (1,804) Earnings before finance costs and income tax 14,717 10,857 Finance costs (834) (970) Profit before income tax 13,883 9,887 Income tax expense (4,452) (2,868) Net profit for the year 9,431 7,019 Total comprehensive income for the year 9,431 7,019 ANNUAL REPORT

82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27 Deed of Cross-Guarantee (continued) Statement of Financial Position Current Assets Cash and cash equivalents 2,980 8,156 Trade and other receivables 30,765 29,266 Other financial assets Other assets 1,673 1,199 Total Current Assets 35,418 38,890 Non-Current Assets Other assets 9 72 Property, plant and equipment 2,495 2,070 Intangible assets 66,294 67,074 Total Non-Current Assets 68,798 69,216 Total Assets 104, ,106 Current Liabilities Trade and other payables 9,217 7,918 Provisions 6,313 6,400 Borrowings Other financial liabilities 84 - Current tax liabilities 3,165 3,538 Total Current Liabilities 19,005 18,263 Non-Current Liabilities Provisions 2,800 2,677 Borrowings 11,249 15,095 Deferred tax liabilities 1,750 1,521 Total Non-Current Liabilities 15,799 19,293 Total Liabilities 34,804 37,556 Net Assets 69,412 70,550 Equity Issued Capital 293, ,748 Reserves (222,600) (222,730) Retained Earnings (1,736) (468) Total Equity 69,412 70, QANTM INTELLECTUAL PROPERTY LIMITED

83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28 Related Parties Parent entity QANTM Intellectual Property Limited. Subsidiaries Interests in subsidiaries are set out in Note 26. Key management personnel Disclosures relating to key management personnel are set out in Note 29 and the remuneration report in the Directors' Report. 29 Key Management Personnel Disclosures Key management personnel (Directors and Executive Officers) remuneration included within employee expenses for the year is shown below: Short-term employee benefits 2,444 1,943 Post-employment benefits Other long-term benefits Share-based payments Total KMP compensation 2,648 2, Contingent Liabilities Estimates of material amounts of contingent liabilities, not provided for in the financial report: Bank guarantees in respect of property leases 2,494 3, Capital and Leasing Commitments (a) Finance Leases Minimum lease payments: - not later than one year between one year and five years later than five years - - Minimum lease payments 519 1,187 Less: finance changes (44) (111) Present value of minimum lease payments 475 1,076 Finance leases are in place for plant and equipment with a range of lease terms. The leases have terms of renewal options but no purchase option or escalation clauses. ANNUAL REPORT

84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Capital and Leasing Commitments (continued) (b) Operating Leases Non-cancellable operating leases contracted for but not recognised in the financial statements: Minimum lease payments under non-cancellable operating leases: - not later than one year 5,734 5,120 - between one year and five years 17,743 19,559 - later than five years 8,860 12,596 32,337 37,275 Operating leases have been taken out for the rental of premises. Lease payments are increased on an annual basis to reflect market rentals. 32 Cash Flow Information (a) Reconciliation of result for the year to cash flows from operating activities Reconciliation of net income to net cash provided by operating activities: Profit for the year after income tax 9,513 7,180 Cash flows excluded from profit attributable to operating activities Non-cash flows in profit: - depreciation and amortisation 2,164 1,897 - Transaction costs relating to issue of new shares - 6,601 - Share based payments Effect of exchange rates (136) (23) - Unrealised gain on investment in derivatives Bad debts Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries: - (increase)/decrease in trade and other receivables (2,505) 1,069 - (increase)/decrease in other assets (87) increase/(decrease) in deferred borrowing costs 55 (119) - increase/(decrease) in trade and other payables 1,388 (1,956) - increase/(decrease) in provisions 71 2,372 - increase/(decrease) in income tax payable (356) 3,782 - increase/(decrease) in deferred tax balances 230 (2,939) Cash flow from operations 11,298 19, QANTM INTELLECTUAL PROPERTY LIMITED

85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cash Flow Information (continued) (b) Reconciliation of Liabilities arising from Financing Activities 1 July s $ Cash flows 000 s $ Foreign exchange movement 000 s $ Fair value changes 000 s $ Acquisition 000 s $ 30 June s $ Leases 1,076 (601) Bank loans 14,600 (3,600) ,000 Total liabilities from financing activities 15,676 (4,201) , Auditors' Remuneration During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tomatsu, the auditor of the Company. Remuneration of the auditor for: - auditing or reviewing the financial statements 202, ,000 - investigating accountant - 710,331 - other advisory services - 104,476 - other assurance services - 26, ,071 1,021, Events Occurring After the Reporting Date On 2 July 2018, the Company finalised the acquisition of the Malaysian intellectual property company, Advanz Fidelis IP Sdn Bhd ( AFIP ) (formerly Advanz Fidelis Sdn Bhd). The acquisition involved an upfront cash payment of AUD 3.05 million with further payments subject to agreed earn-out arrangements over an 18 month period, representing 6.5 times normalised EBITDA. The acquisition forms part of QANTM s willingness to pursue incremental acquisition opportunities that expand the group s intellectual property client base and revenue generation potential. The acquisition supplements the Company s existing South-East Asian operation in Singapore. No other matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 35 Company Details The registered office of the Company is: QANTM Intellectual Property Limited Level 15 1 Nicholson Street Melbourne VIC 3002 ANNUAL REPORT

86 DIRECTORS DECLARATION The directors of the Company declare that: 1. the financial statements and notes are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards, which, as stated in Basis of Preparation in the Notes to the Financial Statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and b. give a true and fair view of the financial position and performance of the consolidated group; 2. the Chief Executive Officer and Chief Financial Officer have given the declarations required by Section 295A that: a. the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; b. the financial statements and notes for the financial year comply with the Accounting Standards; and c. the financial statements and notes for the financial year give a true and fair view. 3. in the directors' opinion, there are reasonable grounds to believe that: a. the Company will be able to pay its debts as and when they become due and payable; b. The Company and the companies to which the ASIC Corporations Instrument applies, as detailed in note 28 to the financial statements, will as a group, be able to meet any obligations or liabilities to which they are, or may, become, subject by virtue of the deed of cross guarantee. This declaration is made in accordance with a resolution of the Board of Directors. Chairman:... Richard England Dated this 29 th day of August QANTM INTELLECTUAL PROPERTY LIMITED

87 INDEPENDENT AUDITOR S REPORT Deloitte Touche Tohmatsu ABN Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Tel: Fax: Independent Auditor s Report to the members of QANTM Intellectual Property Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of QANTM Intellectual Property Limited (the Company), and its subsidiaries (the Group) which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group s financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited ANNUAL REPORT

88 INDEPENDENT AUDITOR S REPORT Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter Carrying value of goodwill impairment assessment Refer to Note 11 As at 30 June 2018 the Group s carrying value of goodwill totals $45.8 million. Significant judgement is exercised in determining the assumptions and estimates involved in preparing a Value in Use (ViU) valuation model including: Future cash flows and growth rates for the FPA cash generating unit ( CGU ); and Discount rates. How the scope of our audit responded to the Key Audit Matter In conjunction with our valuation experts our procedures included, but were not limited to: Assessing the objectivity and competence of the external valuation specialist used by management; Evaluating management s methodology used to assess the FPA CGU for impairment; Challenging key assumptions including forecast growth rates by comparing them to historical results, business trends, economic and industry forecasts and comparable organisations; Assessing the consistency of the cash flows used with the latest Board approved budget for FPA and assessing the historical accuracy of forecasting by FPA; Evaluating the discount rate used by assessing the cost of capital for the FPA CGU, the company and comparable organisations by comparison to market data and industry research; Testing on a sample basis the mathematical accuracy of the cash flow model; and Performing sensitivity analyses on the impairment model using varied discount rates and growth projections to simulate alternative market conditions. We have also assessed the appropriateness of the disclosures included in Note 11 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Directors Report which we obtained prior to the date of the auditor s report, and also includes the following information which will be included in the Group s annual report (but does not include the financial report and our auditor s report thereon): Operational, Financial and other Business Highlights, the Chairman s Letter and the Managing Director s Letter, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. 86 QANTM INTELLECTUAL PROPERTY LIMITED

89 INDEPENDENT AUDITOR S REPORT In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. When we read the Operational, Financial and other Business Highlights, the Chairman s Letter and the Managing Director s Letter, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgment to determine the appropriate action. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ANNUAL REPORT

90 INDEPENDENT AUDITOR S REPORT Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 30 to 37 of the Directors Report for the year ended 30 June In our opinion, the Remuneration Report of QANTM Intellectual Property Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Gerard Belleville Partner Chartered Accountants Melbourne, 29 August QANTM INTELLECTUAL PROPERTY LIMITED

91 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows. This information is current as at 15 August In accordance with ASX listing rule the Company confirms that it has used the cash and assets in a form readily convertible to cash that it had at the time of admission to the ASX in a way consistent with its business objectives. The distribution of issued capital is as follows: Size of Holding Number of Shareholders Ordinary Shares % of Issued Capital 100,001 and Over ,980, % 10,001 to 100, ,491, % 5,001 to 10, ,222, % 1,001 to 5, ,032, % 1 to 1, , % Total 1, ,904, % Distribution of Retention Rights Holders The distribution of unquoted Retention Rights on issue are: Size of Holding Number of Holders Unlisted Options % of Issued Capital 100,001 and Over ,001 to 100, , ,001 to 10, ,001 to 5, to 1, Total , Less than marketable parcels of ordinary shares There are 30 shareholders with unmarketable parcels totalling 2,561 shares. ANNUAL REPORT

92 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES 20 Largest Shareholders The Twenty largest shareholders of quoted equity securities are as follows: Number of fully paid Ordinary Shares % of issued Capital 1 HSBC Custody Nominees (Australia) Limited 32,299, % 2 National Nominees Limited 6,145, % 3 Argo Investments Limited 4,900, % 4 J P Morgan Nominees Australia Limited 4,031, % 5 John Dower 2,888, % 6 Thomas Peter Gumley 2,444, % 7 Brett Connor 2,225, % 8 Curpsi Pty Ltd 2,037, % 9 Fordham Pty Ltd 2,037, % 10 Gnarwarre Investments Pty Ltd 2,037, % 11 Loughnan Hill Pty Ltd 2,037, % 12 Macrophage Pty Ltd 2,037, % 13 Oakvale Pty Ltd 2,037, % 14 Pennin Pty Ltd 2,037, % 15 Petrob Holdings Pty Ltd 2,037, % 16 Rezinlow Holdings Pty Ltd 2,037, % 17 Rocky Road Pty Ltd 2,037, % 18 Syabrite Pty Ltd 2,037, % 19 TSAR Investments Pty Ltd 2,037, % 20 Woodcastle Pty Ltd 2,037, % Totals 81,419, % Total Quoted Equity Securities 132,904,331 Unquoted Equity Securities The Company had the following unquoted retention rights on issue as at 15 August 2018: 12 holders of retention rights issued to employees 146, % 90 QANTM INTELLECTUAL PROPERTY LIMITED

93 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES Substantial Shareholders The names of the Substantial Shareholders listed in the Company's Register as at 3 July 2018: Shareholder Number of Ordinary Fully Paid Shares % of Issued Capital Perpetual Limited & Subsidiaries 12,368, % Investors Mutual 10,030, % Renaissance Smaller Companies Pty Ltd 8,439, % Restricted Securities The Company had the following restricted securities on issue as at 15 August 2018: Class Number of Shares % of Issued Capital Voluntary Escrow - fully paid ordinary shares 67,861, % The escrow period applying to these shares varies from the date of release of the FY18 results to 30 August Voting Rights In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney, or in a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for each fully paid ordinary share, on a poll. Retention rights have no voting rights. On-Market Buy-Backs There is no current on-market buy-back in relation to the Company's securities. ANNUAL REPORT

94 CORPORATE DIRECTORY Company Details QANTM Intellectual Property Limited ACN: ASX: QIP Registered Office Level 15, 1 Nicholson Street Melbourne VIC 3000 Australia Postal Address GPO Box 4387 Melbourne VIC 3001 Notice of Annual General Meeting QANTM s Annual General Meeting of Shareholders will be held on Thursday, 29 November 2018 at the State Library Victoria, Village Roadshow Theatrette, 179 La Trobe Street, Melbourne, Victoria. The meeting will commence at 2:30pm Australian Eastern Daylight Time. Corporate Governance Statement The Corporate Governance Statement, as at 29 August 2018, has been approved by the Board and is available for review on the Company s website ( Directors Richard England, Chairman Leon Allen, Managing Director and Chief Executive Officer Abigail Cheadle, Non-executive Director Cameron Judson, Non-executive Director Sonia Petering, Non-executive Director Company Secretary Martin Cleaver, Company Secretary Hasaka Martin, Joint Company Secretary Share Registry Services Shareholders who require information about their shareholdings, dividend payments or related administrative matters should contact the Company s share registry. Computershare Investor Services Pty Limited 452 Johnston Street Abbotsford VIC 3001 Telephone from within Australia: Telephone from outside Australia: Each enquiry should refer to the shareholder number which is shown on issuer-sponsored holding statements and dividend statements. Auditor Deloitte 550 Bourke Street Melbourne VIC 3000 Solicitor MinterEllison Level 23, Rialto Towers 525 Collins Street Melbourne VIC 3000 Website 92 QANTM INTELLECTUAL PROPERTY LIMITED

95 ADVANZ FIDELIS IP SDN BHD REG U DAVIES COLLISON CAVE PTY LTD ACN DAVIES COLLISON CAVE LAW PTY LTD ACN QANTM Group Members QANTM Intellectual Property Limited ACN DAVIES COLLISON CAVE ASIA PTE LIMITED DAVIES COLLISON CAVE NZ LIMITED FPA PATENT ATTORNEYS PTY LTD REG E NZBN ACN FPA PATENT ATTORNEYS ASIA PTE LTD REG W QIP NOMINEES PTY LTD ACN QIP SERVICES PTY LTD ACN ANNUAL REPORT 2018

96 PLANT BREEDER S RIGHTS INDUSTRIAL CHEMICALS BUILDING AND CONSTRUCTION FASHION, ARCHITECTURE AND DESIGN PHARMACEUTICALS AND CHEMISTRY ICT AND SOFTWARE C L E A N T E C H N O L O G Y, ENERGY ELECTRICAL AND ELECTRONIC ENGINEERING FOOD, BEVERAGES, FMCG MEDICAL DEVICES AND TECHNOLOGY BIOTECHNOLOGY